How is depreciation on a house figured in an insurance claim?
Short answer. Insurers do not depreciate a house as one unit on a claim. They depreciate each damaged component separately, such as the roof, siding, paint, flooring and cabinets, based on that item's age, expected life and condition, so one estimate can show heavy depreciation on an old roof and very little on newer interior finishes.
Component by component
A claim estimate is a list of line items, and each carries its own depreciation. Common patterns:
- Roof covering: often the largest depreciation on a storm claim, because roofs have shorter lives than most of the structure.
- Paint: interior and exterior paint have short expected lives, so older paint can be heavily depreciated.
- Carpet and flooring: depreciated by age and type.
- Siding, gutters and windows: each with its own life expectancy by material.
- Framing and drywall: long-lived, often depreciated little or not at all.
- Labor, debris removal and permits: treatment varies by carrier and state.
The house's age is not the roof's age
A 30-year-old house can have an 8-year-old roof. The adjuster should use the age of each component, not the age of the home. If you replaced the roof, windows or flooring, keep the invoices, because they directly reduce depreciation.
How it affects payment
- With replacement cost coverage, depreciation is usually held back and paid after repairs, so the total ends up close to the full repair cost minus the deductible.
- On ACV terms, the depreciation is not paid, and older components cost you the most.
- Some policies put only the roof on ACV terms while the rest of the house stays on replacement cost.
If you were thinking about taxes
Tax depreciation on a house applies only to rental or business property, not to a home you live in.
See recoverable depreciation and interior water damage coverage.