Understanding Recoverable Depreciation in Homeowner’s Insurance
Being hit with a huge claim is
rare, but it happens to a great many homeowners. Trees falling on homes,
flooding, wind storms, fire and any number of things can happen to a home at a
given time. Homeowner’s insurance and its various addendums are designed to
give you peace of mind that you’re covered should something extreme happen to
your home.
The Claims Process
When you need to put your
homeowner’s insurance to good use, you’ll want to have as much documentation as
possible. Take pictures and videos of affected areas. If you thought to have
pictures and videos from before the incident, be sure you present those along
with your new photographs of the damage to the insurance agent. You’ll want to
make a full accounting of all expenses associated with the problem. If your
home is not habitable, for example, your insurance should cover all or at least
part of the cost to rent other housing while repairs are underway.
A claims representative from the
company will come out to inspect the damage. He’ll pull everything together in
a packet and submit it to the insurance company. After the wheels of the
company turn for a bit, you’ll get a check in the mail to cover the damages
less your deductible and less depreciation. It is the depreciation that can
cause concern for many homeowners.
Recoverable Depreciation
A recent change to homeowner’s
insurance policies allows the insurance company to hold some of the funds back
until the projects are complete. Usually companies do this only on very large
dollar amounts to protect themselves as well as the homeowner. Recoverable
depreciation is a sum of money that you won’t get until the job is complete. It
is a cushion to help determine the exact amount of the repairs and to make you
whole again. Insurance is not provided to be a source of additional income. It
should pay for your necessary repairs and replacements and not leave you
thousands to spend on your own.
Insurance companies make this work
by releasing about 60% of the funds to you upfront. That should be enough to
buy supplies and to put a deposit down on the contractor you’re using for
repairs. As the work progresses, you’re continuing to document all expenses
throughout the process. In some cases, your contractor will be helping to
compile all the receipts and numbers and working with your insurance company on
your behalf. When the job is complete, you’ll be ready to recover the
depreciation.
Recovering Depreciation
Some depreciation is not
recoverable, such as an old wooden fence that was blown down, but most
depreciation is recoverable to an extent. When the job is finished, you’ll
submit all receipts, invoices and dates for the project to your insurance
company. They will tally it up and inspect your property to be sure that the
job is complete. Then, a final check will be cut to cover the exact costs for
the project based on the receipts and invoices.
You can recover up to the full
amount of the withheld depreciation. While annoying at times, holding back the
funds lets the insurance company keep tabs on how the money is being spent and
reduce insurance fraud. It also protects homeowners. Contractors will have a
strong incentive to finish the job they start because they have to in order to
finish getting paid.
