How the two checks work

With a replacement cost policy, most companies pay with two checks (Texas Department of Insurance):

  1. The first check comes after the adjuster has looked at the damage: the estimated cost of the repairs, minus depreciation and the deductible.
  2. The second check is the amount kept for depreciation, paid once the insurer gets the bill for the finished job.

California writes the same order into law: where the policy requires the repair to collect full replacement cost, the insurer pays the actual cash value until the property is repaired, rebuilt or replaced, then pays the difference up to the policy limits (Cal. Ins. Code 2051.5(a)(2)).

A roof, worked through

Travelers’ method: a 25-year composition shingle roof depreciates 4% a year, so at 10 years old it is depreciated 40%. With a $20,000 replacement estimate and a $2,000 deductible:

Amount
Replacement cost $20,000
Depreciation, 10 years at 4% $8,000
Deductible $2,000
First check $10,000
Recoverable depreciation, after the roof is replaced $8,000

The actual cash value vs replacement cost guide works the same roof under an ACV policy.

What you can recover

  • Only what you spend. If the work costs less than the estimate, the depreciation paid back is the difference between the first check and what you actually paid. In Travelers’ example, a laptop with a $1,000 replacement cost and a $600 actual cash value, replaced for $900, gets $300 back.
  • Up to the replacement cost. Buying something better doesn’t raise it: replaced with a $1,500 laptop, the same claim still gets back only the $400 of depreciation.
  • Items you replace. If you decide not to repair or replace an item, you may not be able to claim more for it (Travelers).

How to claim it

Travelers’ steps; your insurer’s claim guide lists its own:

  1. Tell the insurer you intend to recover the depreciation, before the deadline.
  2. Repair or replace the damaged property.
  3. Save every invoice, signed contract, receipt and canceled check for the work.
  4. Mark each one with what was replaced or what work was done.
  5. Send them with the claim number on everything, and keep copies.

If the work can’t be done for the replacement cost on the estimate, Travelers asks you to call before the repair, not after. That is where a supplement comes in.

The deadline

  • Travelers: in most cases, notice of your intent within 6 months, or 180 days, of the date of loss; some states and policies give more or less time.
  • California: a policy can’t give less than 12 months from the first actual cash value payment to collect the full replacement cost, or 36 months for a loss in a declared state of emergency. The insurer must grant extra six-month extensions for good cause when delays beyond the insured’s control hold up the rebuild, such as permit delays, missing materials or no contractors available (Cal. Ins. Code 2051.5(b)).

The Texas Department of Insurance notes that repairs usually must be finished within a set time, and says to ask your agent or adjuster how long you have. Your policy and your state’s law set it.

For the contractor

The second check is released on the paperwork, and the contractor’s final invoice is most of it. An invoice that names the work line by line, in the same terms as the estimate, makes the “mark each one” step simple. The contractor invoice template guide has a free template laid out that way.

Common questions

Do I get to keep recoverable depreciation?

It pays for the repair: you recover what you actually spend on the work, up to the replacement cost (Travelers).

What is non-recoverable depreciation?

Depreciation that isn’t paid back: under an actual cash value policy, the depreciation is never paid, and under a replacement cost policy, items you don’t repair or replace may not qualify (Travelers).

How long do I have to claim recoverable depreciation?

Travelers asks for notice within 180 days of the loss in most cases. In California, at least 12 months from the first payment, or 36 months after a declared state of emergency (Cal. Ins. Code 2051.5(b)).

Is recoverable depreciation on a roof claim?

Yes, when the policy pays replacement cost on the house. The roof is one of the parts of a house that wears out and is depreciated by its age (Travelers).