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Your home and most of its contents, such as your television, your washing machine and even your roof, may lose value over time due to factors such as age, wear and tear, and obsolescence. This loss in value is commonly known as "depreciation."
Under most insurance policies, claim reimbursement begins with an up-front payment for the actual cash value of your damage, or the value of the damaged or destroyed item(s) at the time of the loss.
If you have replacement cost coverage included on your policy, you may be able to receive additional money to cover the depreciation of these items. If this is the case, reimbursement may involve two or more payments – one for your initial payment based on the actual cash value of your items and then additional payment(s) once you repair and/or replace the damaged or destroyed items and provide us with documentation.
Here´s some more information on how we calculate depreciation and determine whether or not you are entitled to any additional payment(s).
Generally, depreciation is calculated by evaluating an item´s replacement cost value (i.e., the current cost of repairing the item or replacing it with a similar one) and its life expectancy (i.e., the item´s average expected lifespan).
For example, let´s say your 37-inch LCD television was destroyed in a house fire. You bought the television four years ago and it was in good condition before the fire. A similar television is sold in stores today for $1,000 (the replacement cost value). This television has a life expectancy of 10 years, meaning it loses 10% of its value each year. Because your television was four years old, it had lost 40% of its value before being destroyed by the fire. Therefore, the actual cash value (i.e., the value at the time of the loss) of your television is $600. Here is the calculation:
This calculation technique also applies to most of the structural components of your house that wear out over time, such as the roof. If your house has a 25-year composition shingle roof, it would depreciate at 4% a year under normal conditions. If the roof is 10 years old at the time of your loss and it requires replacement, we would subtract 40% depreciation (10 years x 4% a year) from your replacement cost estimate to determine the actual cash value of your roof. Please keep in mind the condition of an item may also factor into the depreciation calculation.
The estimate provided by your Travelers claim representative outlines your initial claim payment (noted as "Net Claim") based on the actual cash value of your property, less your deductible.
If you have replacement cost coverage, you may also see an amount for "Recoverable depreciation." This is the total amount of depreciation shown on your estimate based on the age and condition of your damaged item(s). In the example above referencing your television, the recoverable depreciation is $400.
If you have replacement cost coverage, here are the next steps you should take:
* Your potential reimbursement is governed by the replacement cost. If you find that you cannot repair or replace damaged or destroyed item(s) for the replacement cost established on your estimate, please contact your claim representative before repairing or replacing the item(s).
Also, please keep in mind that when repairing or replacing an item, you can only recover the amount you actually spend. For instance, in our earlier example we determined the replacement cost value of your television was $1,000. If you purchase a replacement television for $900 and submit a request for the recoverable depreciation, Travelers will reimburse you $300–the difference between the actual cash value of your previous television ($600) and the cost of your new one ($900).
While there are some exceptions, most insurance policies include some replacement cost coverage. Your Travelers claim representative will go over your coverage with you upon inspecting your property.
We use estimating software that relies on data from many reputable sources, including guides published by the U.S. government and the National Association of Home Builders. The information in these guides is widely used in the industry and is composed of relevant data from manufacturers, retailers, installers, contractors, insurance companies, home inspectors, etc.
Yes. Please review your policy for specific details. In most instances, you must notify your claim representative of your intent to recover this depreciation within 180 days of the date of loss.
You may purchase a more expensive item to replace the one you lost, but we can only reimburse you up to the replacement cost value. In the previous example, we determined the actual cash value of your 37-inch LCD television was $600, and the cost of a similar television is $1,000. If you purchase a 46-inch television for $1,500 and submit a request for recoverable depreciation, you will be reimbursed $400 the recoverable depreciation on your original television.
This decision is entirely yours. If you do not repair or replace the damaged or destroyed items, you may not be able to submit a request for additional payment(s).