How does held back depreciation work after loss in homeowners insurance?

Question

After a fire, my contents were priced and a check given to me by the insurance adjuster, with depreciation held back.I have purchased almost all items and submitted receipts for them to the adjuster. The adjuster will not pay me any of the held back depreciation because the total amount I spent is not above the total money he paid me for the contents. Is this how it is supposed to be?

If they hold back depreciation, how does one replace everything on the list? Some people don't have extra money hanging around to spend. Should a policyholder be expected to use their own money after a loss?

Answer 1

What does it say in your policy, do you have "ACV" Actual Cash Value or do you have Replacement Cost. That makes a huge difference in how you are paid.

*ACV - Cost of replacing damaged or destroyed property with comparable new property, MINUS depreciation and obsolescence.

** Replacement Cost - The dollar amount needed to replace damaged personal property without deducting for depreciation but limited to policy maximum.

Replacement cost is the better of the two. It pays you what ever it cost you in today's market to replace damaged property with like property, no depreciation.

So if you bought a Kenmore refrigerator for $1000.00 2 years ago ACV would pay only $800.00 depreciation is 10% per year.  

If you have replacement cost and you go out and buy the same Refrigertator but the price has gone up to $1500.00 then insurance company will pay you a $1000.00 and after you purchase fridge send receipt that shows you paid $1500.00 for the same fridge then they will reimberse you the $500.00.

Answer 2

Lets say you have a couch that was destroyed.  

The adjuster estimates the cost to replace the couch at $800.00.  He applies $200.00 deprecation and pays you $600.00.  

You go out and purchase a new couch. The new couch costs $580.00.

According to you -- the adjuster should pay you $200.00 even though you did not incur that loss.  You think you should be paid $800.00 when it only cost you $580.00 to replace the item.  .....Do I have to tell you the problem here?

The company owes to put you back where you were. Not better - not worse.  If they pay you 800.00 for a couch that was replaced for 580.00 you end up in a better position. IE- a new couch and 200 pocket money.

However, say you replace that couch with a similar couch. But it costs you 750.00 to do it.  The insurance company has paid you 600.  Therefore, you can turn in the receipt and be paid back the 150.00 more that it actually cost to replace the item with a similar item.

Do you see the difference here?

If the company paid you $10,000 to replace all your items.  And you spent $10,000 replacing those items.  They don't owe you any more.  You did not incur a loss that was greater than their payment.

"Should a policyholder be expected to use their own money after a loss?" -- yes.

Or you go to the furniture store. Purchase the new couch on their 90 days no interest plan. Immediately take that receipt to the insurance company and submit it for reimbursement. Get the money from the insurance company--- pay of the furniture store and replace the next time.

Some folks take their Visa or Master Card . Replace the items. Submit the receipts. Get the money and pay the card off.

You have to look at your resources and figure out the best way to do it.

Keep in mind -- the insurance company owes you for what you had.

If you had a 10 year old 32" TV that was damaged.  You can't replace it with a 48" plasma and expect the insurance company to pay the full price of the new TV.  You can't really get  a 32" standard TV anymore.  However the LC D's are much closer to a 32" TV in price than a plasma.  So you would replace it with the most basic 32" LCD.  It's still nicer than what you had...but since what you had is no longer available -- it's the next closest thing.  

A lot of people use a loss like this to upgrade. And that's fine to do. But...be aware that the insurance company may not foot the entire bill for the upgrade. They will give you money toward it but probably will not pay for the whole thing.

Hope this helps.

Answer 3

The adjuster is following guide lines.  Yes you need to spend all of the money (RCV) to get what is legally yours.  Some adjusters have flexibility to allow you to piece meal the process thus making it easier on the homeowner.