Recoverable Depreciation 101 | A Houston Homeowner’s Guide

November 17, 2020

Recoverable Depreciation 101

When it comes time for roof replacement, most homeowners do not have the full cost in cash, prepared to be handed over as soon as it’s needed. This is especially true if your roof is damaged in an accident or storm, facilitating the need for a more sudden roof replacement. That’s why home insurance exists, to cover costs for the updates you need when you need them. But when you apply to your insurance company to cover the cost of your roof replacement, you may be met with unfamiliar terms that send your head spinning. Among them is “recoverable depreciation.” 

Though much of the definition is included in the term, this can still be quite a weighty pair of words to hear outside of the context, and insurance claims are already filled with hefty terminology. Homeowners should always go into a roof replacement fully informed and prepared. If there are any terms or processes you don’t understand, talk to your insurance company or your roofing contractor. For today’s blog, let’s break down everything you need to know about recoverable depreciation:

What Is Recoverable Depreciation?

According to AARP, recoverable depreciation is the “difference between replacement cost and actual cost value.” But to understand that, you have to understand both actual cash value (ACV) and replacement value — and why they’re different.

Replacement cost is the amount it actually costs to have a roof replacement done, including both the materials and the cost of labor for the installation. But over time, the value of your home, and your roof itself, decreases. With age, the ACV of your roof may go down. For instance, a 10 year old roof may only be worth $5,000, even though at the time it was purchased it was worth $10,000. The $5,000 that was lost over time is the recoverable depreciation. Some insurance companies base their coverage off ACV, while others base it off replacement cost value (RCV), and that will make a difference later in determining whether or not your recoverable depreciation can, in fact, be recovered. 

How Recoverable Depreciation Works: The Key For Calculation

Recoverable depreciation is based on the length of time you’ve had your roof and the lifespan of that roof. Therefore, to calculate recoverable depreciation, you first need to know the lifespan of the roof. An asphalt shingle roof typically has a lifespan of about 20 years.

To calculate for recoverable depreciation, take the original cost of the roof and divide it by 20. For example, that $10,000 roof would depreciate by $500 each year. A five year old roof would have a recoverable depreciation of $2,500 and so on. 

Is There Such a Thing As Non-Recoverable Depreciation?

By the very name, recoverable depreciation implies that you can, well, recover the value lost during the depreciation of your roof. This is handy, of course, but is there ever such a thing as non-recoverable depreciation?

Unfortunately, not all depreciation is recoverable. Some insurance policies do not include recoverable depreciation. In these cases, your insurance company will cover the ACV minus the cost of your deductible, but nothing else. 

Check your plan to make sure that the insurance company covers replacement costs, so that you can see if you’re eligible for recoverable depreciation. Even some plans that offer replacement cost may not offer replacement cost on every item, although roofs are typically included. In other cases, they may only offer replacement cost for roofs in the event that a tree falls on it or some other no-fault accident occurs. 

Make sure you provide thorough paperwork and fill your claim out properly to apply for recoverable depreciation or the recoverable depreciation may be denied. In some cases, such as if the roof is over 20 years old, insurance plans that don’t include recoverable depreciation may not offer any coverage at all. It’s always best to have a plan that includes recoverable depreciation if possible.

How To Recover Recoverable Depreciation

When you file a claim with the insurance company, make sure to keep all receipts you receive from the roofing contractor. You’ll also need the receipts from the original roof so that you can compare them. If the new roof costs less than the original, the insurance company will probably base their coverage on the replacement cost rather than the original cost. Images of the current roof are also handy, to establish how necessary the roof replacement is. From there, the insurance company will do their own calculations and you may be able to get back your recoverable depreciation, minus the cost of the insurance deductible. 

Who Pays For the Roof Replacement?

Again, this depends largely on your insurance plan. In some cases, homeowner may have to pay a partial or full amount to the roofing contractors upon completion of the project and then request reimbursement from their insurance company. In other cases, the insurance company might pay the contractors directly once the invoice is sent and approved. Keep in mind that if your roof replacement comes under budget, the insurance company will take back or keep the money leftover, rather than sending it to you. 

In either case, you’ll want to review your plan and speak with an insurance representative about your particular situation. It may also be a good idea to talk to your roofing contractor about your options so that you have a game plan and know everything available to you. If you find that you have to pay partial or full cost upfront — or that your insurance company will not cover the full cost of the replacement — there are also financing options available. 

Recoverable depreciation is just one part of filing your insurance claim, but it’s an important part that can make all the difference when budgeting for your project. Make sure that you have a replacement cost value policy rather than actual cash value policy. Need help with your upcoming roof replacement? Contact Houston Roofing & Construction today for more information or a free estimate to get started.

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