Money left behind
Recoverable depreciation: the part of your claim you have to ask for
On a replacement cost policy the insurer pays actual cash value first, withholding an amount called recoverable depreciation, and releases that money only after the work is completed and the final invoice is submitted. Homeowners who never submit the final invoice never receive it, and the carrier simply keeps it. This is not a trick, it is written into the policy, but nothing in the process reminds you to collect.
How the two payments work
| Term | What it means | When you see it |
|---|---|---|
| RCV | Replacement cost value. The full cost to replace with new materials of similar kind and quality at today's prices. | The headline figure on the estimate |
| Depreciation | A reduction for the age and condition of what was damaged. | Subtracted from RCV |
| ACV | Actual cash value. RCV minus depreciation. | Your first cheque |
| Recoverable depreciation | The withheld difference, released after the work is done. | Your second cheque, if you ask |
A worked example. A roof with an RCV of $28,000 on a policy with a $4,000 wind and hail deductible, and $9,000 of depreciation applied for the age of the shingles. The first payment is $28,000 minus $9,000 depreciation minus the $4,000 deductible, which is $15,000. After the work is complete and the invoice is submitted, the $9,000 recoverable depreciation is released. A homeowner who never submits the invoice receives $15,000 on a $28,000 roof and believes they were underpaid, when in fact they were paid in a sequence and stopped after step one.
Complete the work. Get the contractor's final invoice showing the work performed and the amount paid. Send it to the carrier with your claim number and a short written request for release of the withheld recoverable depreciation. Keep proof of what you paid. If the final cost exceeded the estimate because of conditions discovered once the roof was opened up, that difference is a supplement, which is a separate request made at the same time.
When depreciation is not recoverable
Some policies pay actual cash value only, in which case the depreciation is a permanent reduction rather than a holdback. This is common on older policies, on lower-tier policies, on landlord and dwelling fire forms used for rental property, and increasingly through roof payment schedules that reduce coverage on roofs above a certain age. Check your declarations page for language about roof settlement, actual cash value loss settlement, or a roof surfaces endorsement.
This is worth knowing before a storm rather than after, because it changes the economics of a claim entirely. A twenty year old roof on an actual cash value settlement may be worth very little after depreciation and a percentage deductible.
The other line that goes missing: overhead and profit
When a repair is complex enough to require a general contractor to coordinate three or more trades, the estimate should include ten percent for general contractor overhead and ten percent for profit. This is known in the industry as O and P, or ten and ten, and it is calculated on the job total. If your estimate involves three or more trades and contains no overhead and profit line, that omission is a common and legitimate subject for a supplement.
A storm claim frequently qualifies without the homeowner realising it. A roof replacement that also involves gutters, siding, painting and interior drywall repair is four trades, not one. On a $30,000 job, ten and ten is $6,000.
What to check on your own estimate tonight
- Is there a depreciation column, and does the summary distinguish recoverable from non-recoverable?
- Does the policy settle the roof at replacement cost or actual cash value?
- Are all affected slopes and elevations in the scope, or only the visibly worst ones?
- Is there an overhead and profit line, and does the job involve three or more trades?
- Are code-required upgrades included, which is ordinance and law coverage, or excluded?
- Does the deductible shown match the wind and hail deductible on your declarations page?