Recoverable depreciation is a term commonly used in insurance claims and refers to the portion of an insurance settlement that is initially withheld by the insurance company until the policyholder can demonstrate that the repairs or replacements have been completed. It represents the difference between the actual cash value (ACV) of the damaged property and its replacement cost value (RCV).
Here’s an example to illustrate recoverable depreciation:
Let’s say you have a homeowner’s insurance policy, and a severe storm damages your roof. The insurance company assesses the damage and determines that the actual cash value (ACV) of the roof is $10,000, considering factors such as the age and condition of the roof.
However, the total cost to replace the damaged roof is estimated to be $15,000. In this case, the insurance company may provide an initial payment of $10,000, which represents the actual cash value of the roof. The remaining $5,000 represents the recoverable depreciation.
To claim the recoverable depreciation, you would need to repair or replace the roof and provide documentation, such as invoices and receipts, to the insurance company as proof of completion. Once the repairs are verified, the insurance company will release the recoverable depreciation amount of $5,000, resulting in a total reimbursement of $15,000 (ACV + recoverable depreciation = RCV).
It’s important to note that the process and specific terms may vary depending on your insurance policy and the insurance company’s policies. Always review your policy and consult with your insurance provider to understand the details and requirements related to recoverable depreciation.
