How do you calculate depreciation on an insurance claim?
Short answer. You can calculate claim depreciation yourself: divide the item's age by its expected life, multiply by the replacement cost, and subtract that from the replacement cost to get actual cash value. Then subtract your deductible to estimate the first check; on a replacement cost policy, the depreciation is the second check after repairs.
Calculator steps
- Replacement cost (RCV): the estimate total, for example $16,000.
- Age: say the roof is 14 years old.
- Expected life: say 25 years for the shingle type.
- Depreciation rate: 14 ÷ 25 = 56 percent.
- Depreciation in dollars: 56 percent of the depreciable lines. If $13,000 of the $16,000 is depreciable, that is $7,280.
- Actual cash value: $16,000 minus $7,280 = $8,720.
- First check: $8,720 minus a $2,000 deductible = $6,720.
- Second check, on a replacement cost policy: $7,280 after the work is complete.
Adjustments real estimates make
- Condition adjustments up or down
- Caps on maximum depreciation
- Different lives for different lines, such as flashing or gutters
- A single table percentage when your policy has a roof payment schedule
Use it to check, not to argue
If your math is far from the insurer's, ask which age and expected life were used. The fix is usually a corrected age backed by proof, not a different formula. Remember too that supplements approved later add their own replacement cost and depreciation, so rerun the numbers whenever the estimate is revised.
Related: ACV vs RCV, roof payment schedules, and roof age and insurance.