How does recoverable depreciation work?
Short answer. Recoverable depreciation is the part of a replacement cost claim the insurer holds back until the damaged property is actually repaired or replaced. You get the actual cash value first, and once you show the work is done and what it cost, the insurer pays the held-back amount, up to the estimate.
Why insurers hold it back
Insurance is meant to put you back where you were, not ahead. Paying full replacement cost up front for an old roof would hand owners a windfall if they never replaced it. Holding back depreciation until the work is done ties the extra money to an actual new roof.
What it means for your cash flow
- Before work: you have the first check, which is replacement cost minus depreciation and the deductible.
- During work: your contract usually takes a deposit from that first check.
- After work: the depreciation check plus your deductible cover the balance.
Expect a gap between finishing the job and receiving the second check. Ask your roofer up front how final payment is timed around the insurer's release.
Rules that apply
- You must actually repair or replace. Cashing the first check and doing nothing forfeits the holdback.
- You receive no more than what you actually spend, up to the estimate.
- Policies set time limits for completing the work or telling the insurer you intend to.
- If a mortgage company is named on the policy, it is usually on the check.
Where it does not apply
If your roof is covered at actual cash value or through a payment schedule, the roof depreciation is non-recoverable, even though other parts of the claim may still be recoverable.
Related: recoverable depreciation on a roof, mortgage company on the check, and the Georgia roof claim timeline.