Understanding Recoverable Depreciation

Chances are that you have never heard the words “Recoverable Depreciation,” unless you have had a homeowners insurance claim. If you have had a homeowners claim, and are staring at that word, you probably don’t know what it means, are also staring at a check, and might even be a little bit angry the check wasn’t as much as you had expected. Well, understanding recoverable depreciation is important because it is money that you can get back and can help you repair your house.

Real estate appreciates (goes up in value), right? Well… generally yes, but the individual parts of a house depreciate (go down in value). Let’s take a roof as an example. As a homeowner you know that if you own your house long enough that you will have to replace your roof. If you have composite shingles they will actually tell you what the expected life of the shingle is. For example, you might hear “this is a 20 year shingle.” That is the manufacturer telling you this shingle will be shot in 20 years. So, let’s say that at year 10 you have roof damage. You are 50% into the life of that shingle and therefore 50% into the life of the roof. The adjuster will come out, calculate out what the cost to replace that roof will be let’s say $10,000, then subtract the recoverable depreciation (let’s say $5,000), subtract the deductible (let’s say $1000), and cut you a check (in this case $4,000). WHAT!?

Let’s understand what happened here. Let’s start with the deductible, that’s easy it’s the part you are responsible for. The recoverable depreciation is the replacement cost of the home minus the depreciation. So the amount they cut the check for is, theoretically, the current value of the roof.

But wait, my policy covers me for replacement cost. Good. That makes that depreciation recoverable. See, insurance policies can be written at the Actual cash value, or at the Replacement Cost. Actual Cash value depreciates the parts, and pays you less. Replacement Cost pays to get you new stuff. At least that is the simple explanation. The problem is, once again, your crummy neighbor. You would never do this, but your neighbor is trying to make money off insurance which insurance is designed for it is supposed to put you back where you were not provided a windfall. See your neighbor doesn’t really want to replace his roof, he wants to pocket the money instead. So the company will pay him, and because of him, you, the actual cash value of the roof. Then,if you provide invoices or show that the roof is in the process of being replaced or has been replaced (each company is a little different), then you get that depreciation back. You are able to “recover”the depreciation. While it is a pain, it’s how the insurance companies make sure that your crummy neighbor does what he is supposed to do, which creates a hassle for all, but because the insurance companies know that you are an upstanding citizen that is going to replace your roof, they created recoverable depreciation. So in this case you would be able to get $9,000 for your roof. The replacement cost minus the deductible, which is what you should have expected in the first place.

Ancillary Auto Insurance Coverage

So we have already seen how we insure an auto for its primary coverage options. We cover liability, uninsured/underinsured motorist coverage, medical payments, collision, and other than collision, which would all be primary coverages. There are a few ancillary coverage options that vary from company to company, so it’s important to ensure that if these ancillary coverage options are important to you that you have a company that covers these well.

ANCILLARY AUTO INSURANCE OPTIONS

  1. Roadside Assistance – Yes Auto Insurance companies do offer roadside assistance. This is the one time when they will often offer ancillary coverage for mechanical breakdown. Meaning you can get this coverage for when your radiator dies. That said coverage varies widely from company to company. Some have mileage limits, others dollar limits, so if this is important to you, please make sure you understand how your policy will cover you.
  1. Rental Coverage – This is not coverage for when you want to get a rental policy for a vacation, but rather in the event of a covered loss you can get a rental car for the time that the vehicle is unable to be used because it is in the shop.
  1. Diminishing Deductibles – It is becoming more and more common that auto insurance carriers offer diminishing deductibles. The idea behind diminishing deductibles is that every year you don’t have a claim your deductible will go down until at some point you don’t have a deductible. If you have a claim the deductible resets to whatever you purchased. This ancillary coverage can help a lot.
  1. Accident/Violation Forgiveness – Yes even insurance companies understand that mishaps happen to the best of us. So you can get ancillary accident and minor violation forgiveness from the companies. What these means is that the rate doesn’t automatically increase when something happens.
  1. New Car Replacement – If you just bought a new car, some companies have a coverage called new car replacement. Basically it protects you from the depreciation that happens to new cars the moment that you drive them off the lot. So if you have an accident to in your brand new car it pays the amount that you paid for the car rather than the actual cash value of the car, which even if you just bought it a week ago can be drastically different.
  1. Gap Coverage – If you have a loan on your car, new or old, gap coverage is extremely important. It covers the difference between what the car is worth, and what you owe on the loan. In the event of a total loss, this ancillary coverage, which can be very affordable, can be worth thousands and can ensure that you don’t end up upside down in the event of a loss to your car.

There are many other ancillary auto insurance coverage options that can be added to your vehicle depending on the company you choose. Start your quote online now, and then make sure you have the coverage you need by talking to one of our experienced agents, and be sure to tell them if one of these ancillary coverages is important to you, because they are ancillary and won’t come automatically on your policy. Unfortunately once you have an accident you will not be able to add these ancillary coverage options, so be sure it’s important that you get it right away.

This is a general explanation of coverage and different companies may treat these coverage options differently for information on exactly how your policy will respond please refer to your policy declarations page as well as the terms and conditions of your insurance policy.

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Insurance Coverage Forms

Insurance coverage isn’t always the same. Understanding what is covered under your insurance coverage form is important. Sometimes you will hear agents throw out the terms basic, Broad, or Special in regards to the coverage. These are called coverage forms, and they basically indicate what the policy will cover you for. Other times they will use terms like DP1 which typically has basic coverage. Or DP3 with has special coverage. Below is what these usually mean, and what is covered under each form (a little leagalese here check your policy, these are general explanations carriers can include and exclude coverage, so its best to check your policy).

Again, these are general and a company has the right to exclude things like Vandalism and Malicious Mischief from a given policy (like a vacant home policy), or if something changes in the home coverage can change. For example, if you run a business out of the home or rent part of it out things can change so tell your insurance agent because these things can change coverage, but generally, this is what is included in each form. So which is right for you? If you ask your insurance agent they will typically tell you are special and deserve that coverage, I would tend to agree. Special is the best is so many ways, and don’t you deserve the best? With the Special form you are covered for it unless it is excluded, and there are lots of things that can be excluded. These include flood, earthquake, and landslide. These can be purchased separately, and we suggest that if you live in an at risk area that you do so to insure you get the coverage you need.

Again, this is a general explanation of insurance coverage forms. Please check your policy for specifics, and your policy will have different terms and conditions, definitions, and can change coverage. Carriers can include and exclude coverage, so its best to check your policy.