Your home and most of its contents may lose value over time due to factors of age, wear and tear and other causes. This loss in value is commonly called “depreciation.”
(The information here is intended to help you, as the homeowner, understand the process. You can also view this information in a document that one insurance company sends to their customers.)
It’s important to understand how depreciation works in regards to an insurance claim. If your property is lost or damaged, most policies cover what is referred to as Replacement Cost Value (RCV).
Depreciation is estimated by subtracting the Actual Cash Value (ACV) of your damaged property from the Replacement Cost Value (RCV). In order to recover the full Replacement Cost Value through the claims process, you must show proof of completed repairs with receipts for claim items replaced on your property. This process is put in place to assure compliance with the terms of your policy – including your obligation to pay your deductible and the Insurer’s obligation to pay reasonable repair or replacement costs.
Replacement Cost Value – Actual Cash Value = Depreciation
This means that if you are able to secure your property repairs for less than the original estimate, you will not be able to cash out the difference. Your depreciation will simply be adjusted and your full deductible subtracted upon review of the final invoice.
There is no “incentive” for you, the Insured, to jeopardize quality and safety of the repair process in order to save money. Always choose a reputable contractor who is able to offer a reasonable warranty on the repairs and/or parts they provide.
With these factors in mind regarding the claims process of replacement cost value policies, you should select your contractor based upon the following criteria:
- Quality of workmanship – Insure they are factory qualified for roof installation
- How well your property will be cared for – do they have local referrals?
- What type of warranty will you have when the job is complete – Does the warranty cover leaks and interior damage caused by the leak?
You cost for all repairs is the price of the deductible, whether the contractor provides an exceptional job or a poor job.
Shouldn’t you select the best contractor available?