Many homeowners open their first insurance payment after a loss and find it falls well short of what repairs will cost. That gap is often not a denial. It’s depreciation the insurer has held back, and in many cases, you can still collect it.
Our friends at The People’s Law Team, PA Property Damage Lawyers discuss how recoverable depreciation works and why so much of it goes unclaimed. Speaking with a property damage lawyer can help you determine whether the amount withheld from your claim was calculated fairly.
Actual Cash Value vs. Replacement Cost
Property policies generally pay in one of two ways. Actual cash value pays what the damaged item was worth at the time of the loss, after accounting for age and wear. Replacement cost pays what it takes to repair or replace it with something of like kind and quality.
Most homeowners policies provide replacement cost coverage for the dwelling. But that doesn’t mean you receive the full replacement cost up front.
How the Payment Is Usually Split
With replacement cost coverage, insurers typically pay in two stages.
The first check covers the actual cash value, minus your deductible. The insurer holds back the difference between actual cash value and replacement cost. That withheld amount is the recoverable depreciation.
The second payment comes after the repairs are completed and documented. If you never make the repairs, you may be limited to the first payment.
It’s a system that makes sense on paper. In practice, it causes a lot of confusion.
Where Disputes Usually Arise
We regularly review claims where the depreciation taken was far larger than it should have been. Insurers estimate depreciation based on the age, condition, and expected lifespan of materials, and those estimates aren’t always accurate.
Common problems include:
- Depreciating a roof as though it were much older than it is
- Applying depreciation to labor costs, which some policies may not allow
- Using a shorter lifespan for materials than is reasonable
- Failing to account for recent upgrades or replacements
- Never issuing the second payment after repairs were finished
Homeowners also run into trouble when their contractor’s final cost is higher than the insurer’s estimate. In that situation, a supplemental request with supporting documentation may be needed.
Collecting the Withheld Amount
Your policy likely sets a timeframe for completing repairs and requesting the withheld depreciation. Check it early. Missing that window can cost you the money entirely.
When repairs are done, send the insurer proof. That usually means signed contracts, final invoices, proof of payment, and photos of the completed work. Keep copies of everything you submit and note the date you sent it.
If the insurer doesn’t respond or pays less than expected, ask for a written explanation showing how it calculated the amount. Compare the depreciation figures line by line against your contractor’s estimate and the age of what was damaged.
When the First Check Isn’t Enough to Start
Sometimes the initial payment isn’t enough to begin repairs, which makes it hard to recover the rest. Talk with your contractor about payment arrangements, and ask your insurer whether it will release depreciation in stages as work is completed. Some will.
If your insurer has withheld depreciation, calculated it unfairly, or refused to release it after repairs were completed, consider having an attorney who handles property insurance disputes review your estimate and policy to see what you may still be owed.