How do insurance companies calculate depreciation on a roof?
The three inputs
- Age. Pulled from permits, sale records, prior claims or what you tell the adjuster on the phone. If your roof is younger than the file says, prove it with the installer's invoice or the permit record.
- Expected life. A figure the carrier assigns by material: longer for architectural shingles than three tab, much longer for metal.
- Condition. Some adjusters push the percentage up for a roof in poor shape or down for one that was well kept.
A worked example
Say a 12 year old architectural shingle roof is assigned a 30 year life. Depreciation is 12 divided by 30, or 40 percent. If the depreciable roofing lines total $14,000, depreciation is $5,600. On a replacement cost policy that $5,600 is held back and paid once the roof is replaced. On an actual cash value roof it is never paid.
Which lines get depreciated
Materials such as shingles, underlayment and ridge cap are depreciated. Tear off and disposal often are not, because there is nothing old about removing a roof. Whether labor is depreciated depends on the carrier's practice and your policy wording, so read the depreciation column on each line rather than assuming.
Caps and schedules
Some carriers cap roof depreciation at a maximum percentage, so a very old roof never drops to zero. A roof payment schedule skips the formula entirely and pays a set percentage by age and material.
Check this first
The age and the life expectancy drive everything. A two year error in age on a $14,000 roof with a 30 year life moves the depreciation by about $930. For how the held back money comes back, see recoverable depreciation on a roof.