An Example of How to Calculate Depreciation and How Claim Damages are Paid
Whether or not you have replacement cost coverage in your insurance policy, the adjuster may estimate depreciation to calculate and estimate the "actual cash value" described in the policy.
- Depreciation is a reduction in value from the replacement cost - a reduction based on age, condition, and expected lifetime. For insurance claim purposes, the reduction is from current replacement cost
- Generally, the policy reduces the loss by that depreciation, and the insured is paid a total less depreciation
- If you have replacement cost coverage, the insurer may only pay the reduced, depreciated value, until you actually replace the item.
For assistance after a loss to your business, home or other property
Contact
John Ruskin
at the address or phone number, below.
John Ruskin is a Louisiana attorney
and a licensed adjuster in multiple states,
with a background in business, residential and environmental claims.
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A Sample Depreciation Calculation
In this insurance depreciation example, the thing was damaged when it was 2 years old, and currently costs 250 dollars to replace (including tax and delivery), and is in average condition. The adjuster might look up the lifetime and annual depreciation percentage from a table provided by the insurer:
| Age at time of loss (Years) |
Total Replacement Cost |
Expected Lifetime (Years) |
Condition (E, Avg, P) |
Depreciation Percent |
Calculated Depreciation |
Total Less Depreciation |
| 2 |
250 |
5 |
Avg |
40% |
100 |
150 |
| |
|
|
|
2 ÷ 5 |
(40% of 250) |
(250-100) |
In this example, the adjuster estimated the claim payment for "actual cash value" ("ACV") at $150. This is the depreciated value. A replacement cost policy, or replacement benefit under your policy, typically provides for a supplemental payment of the remaining $100 after proof of replacement with a contract, invoice or receipt.
- This reimbursement is only up to the the actual cost -- if actual replacement ends up costing $225, your insurer would not pay $250 total dollars, rather: 150 + 75 = $225.
- If you discover that the replacement cost exceeds the estimate, let your adjuster and insurer know as soon as possible -- before you make the purchase, if possible. In all cases, these help your claim: estimates, proposals, receipts, advertisements or whatever shows the actual replacement cost.
- Some insurers, particularly on smaller claims, may pay estimated replacement cost up front, without proof of replacement.
This example is but one of many methods and examples, and each item of your claim will have its own depreciation calculation. Consult with your adjuster or other loss professional on the particulars of your claim, under your policy and the laws of your state.
Remember: The original adjuster's goal is to provide an estimate of damages payable under the policy. If you have additional information on value, condition, age, or replacement cost, you are entitled to provide support for this guidance to the adjuster, and you should.
Other Information
For more information on how to prepare for an insurance claim, or assistance in the adjustment of insurance claims, please contact
John Ruskin
at the address or phone number, below.
