Insurance Law/About the recoverable depreciation
QUESTION: My insurance withheld a recoverable depreciation from a payment of the replacement cost value and said it will be issued after the house is repaired with a submission of a repair invoice. Is the repair invoice required to be exactly the same as the insurance allowed repair costs? If the final repair invoice is less than the allowed repair costs, will the insurance deduct the difference from the recoverable depreciation check? Thank you for your answer.
Keep in mind that the amount that the carrier based the initial payment upon was merely an "estimate" of the projected cost of the repairs. An "estimate" serves two purposes: first, it gives you a document that addresses the 'scope' of damages so you can negotiate with the contractor of choice for the actual repairs only associated with the damages covered by the policy. Second, it allows the carrier to meet the statutory requirements for promptly paying claims once liability is established.
Most policies have a clause which states that the carrier will only the actual cost of the repairs. This is the principle of "indemnity" and means that no one may make a profit from a loss. You can only be put back into the same position you were in prior to the loss.
What happens with the payment of the depreciation that was held back is that all of the receipts/invoices that you have for the covered repairs will be added together, your deductible will be subtracted from that total, the amount of the initial payment will be subtracted and the balance left over will be the final payment.
One thing to keep in mind is that any work that YOU put into the repairs - clean-up, moving furniture, painting, etc. - is also part of the repair cost and should be accounted for(generally at the federal minimum wage rate) so be sure and work with with your adjuster to get that into the final numbers. That is where many people help themselves offset their out-of-pocket expense of the deductible.
Hope this helps.
JD, EGA, RPA, PLCS, CPIU, HCRI-R/C, WIND Umpire/Appraiser
Kevin Hromas & Associates
...Division of US Insurance Information LLC
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QUESTION: Thanks for your reply but it seemed you did not give me a direct answer. So I still do not get it. If the final repair invoice is less than the insurance estimate, for example, by $200, can the insurance deduct $200 from the recoverable depreciation check after the house gets repaired or the insurance canít because the insured can say the final lower invoice because the insured completed some estimating items by himself?
I am sorry if you did not think I gave you a "direct answer". I was trying to explain a rather complex process involved in the recovery of the depreciation that was withheld.
In a straight-forward manner - NO - you will NOT recover the full amount of the depreciation that was held back unless you can prove that you spent the FULL amount that the insurance company estimated for your loss. If you try to claim that some of the repairs were completed by you, then you are going to have to prove that to the insurance company with receipts for materials or other measures.
---------- FOLLOW-UP ----------
QUESTION: Thanks. I got it. However, I have a follow up question about the insurance estimate or allowed repaired costs. After the insurance wrote an estimate and withheld the recoverable depreciation from the payments, I should hire a contractor who quotes at least the same price to the insurance estimate or allowed repair costs even if I see lower quotes; otherwise I will lose some recoverable depreciation after the house is repaired. Is it correct?
Ultimately, YOUR out-of-pocket costs will always be your deductible amount - no more and no less. The final amount that the contractor charges for the repairs - regardless if they are actually lower than what the carrier ESTIMATED will be what is used for the starting point. Your deductible will be deducted from that amount to see what the carrier is ultimately responsible for covering. Then they will subtract what they paid initially and pay the balance. YOU don't get to pocket any extra amounts at that point UNLESS you do some of the repairs yourself.