The Issue of Recoverable Depreciation

Xactimate Estimates

It always amazes us how many homeowners and business property owners who don’t really have a clue what recoverable depreciation really means, when dealing with their property damage insurance claims.

And even stranger than that – from our unique perspective and vantage point – it is even more perplexing the astronomical amount of CONTRACTORS who also don’t have a clue what recoverable depreciation really means when dealing with the property damage insurance claims of their clients.

We know this because we talk to so many contractors on a daily basis. And of course we see actual insurance estimates written by insurance companies and we have the vantage point to be able to see unique details about various projects that go on throughout the United States and Canada that we are in some way involved in.

Consider this scenario – and this is pretty typical of insurance claims that are going on right now in the US and Canada:

A homeowner has a hail damage insurance claim. They call the insurance company to file the claim. The insurance company sends out an insurance adjuster to inspect the property for property damage. They then issue a check and a detailed line item estimate – usually prepared with Xactimate- to the homeowner.

The next thing that happens is the homeowner contacts a number of contractors to come out and look at their property and give them estimates. At some point, depending on who they hire, the homeowner will share their insurance adjuster’s estimate with the contractor. In the estimate it shows very clearly that the total value of this property damage claim is equal to the RCV, which stands for Replacement Cost Value. That’s the total amount of the insurance claim.

Next you will see a deduction for the deductible, first and foremost. Then you will typically see a deduction for what is called Recoverable Depreciation. Finally you will see an amount that is typically equal to an accompanying check to go with it.

Does this sound familiar to you? Well the problem is this, and here’s where the misconception usually comes into play:

Most homeowners when they see the term “Recoverable Depreciation” they tend to ignore the first word of that term, which is recoverable. And the problem is that they focus on the word depreciation. And what comes to mind for them then is depreciated value. Most people have had an auto insurance claim where maybe a vehicle has been “totaled out” by the insurance company. And so they’ve learned the hard way what depreciation actually means. The insurance company does not come out an issue you a check for the full value of what you paid for the vehicle or the full value of what it would cost to purchase a brand new vehicle of like kind at today’s value. Instead what they do is they first deduct mileage, any blemishes on the vehicle and anything else that might have depreciated the value of that vehicle before the accident actually happened. And so they deduct a large amount from what it would actually cost to buy a brand new vehicle at today’s rate and they cut you a check for the difference.

On a property damage insurance claim a homeowner will typically and incorrectly view their insurance claim like an ACV insurance policy versus an RCV policy, which is what most insurance property damage claims actually are (especially if there is a mortgage as it will usually be required). So what a homeowner usually thinks when they view their insurance estimate is that the insurance company is looking at the roof and they’re saying, “Well, the roof is seven years old, so we’re going to take off $3,000 because it’s not brand new anymore and it’s depreciated in value, and so we’re not going to pay as much.”

So they think that the item for the recoverable depreciation is gone forever. They think that that item has been deducted because the roof is older and they’re only going to get the value of what the roof was actually worth before the hail storm occurred. And the contractor typically thinks this same thing! This is totally inaccurate information that’s leading us in wrong directions. It’s inconceivable how so many contractors will allow this misconception to slide through. When contractors miss this, it hurts the industry as a whole and it drives prices down, across the board.

But for anyone out there who still actually doesn’t know the real truth of what recoverable depreciation actually means (and that’s okay; many of us have all been there at one point), today is your day to find out. Because here is the actual truth about recoverable depreciation:

The insurance company has to pay the value of what the roof will cost at today’s rates. They have to pay the cost of a brand new roof and not a used roof. They might deduct what they call recoverable depreciation, yes. But the truth is that they have to pay it once the work is actually performed; or in other words, when the claim is actually incurred.

After the project is completed, an invoice can be submitted to the insurance company for the total value of the actual job, and at that time the insurance company has an obligation to release and pay the Recoverable Depreciation. It’s amazing how many contractors we’ve talked to that have said, “What recoverable depreciation? Do you mean that there’s a way that we can get that back? We always just assume that that money was deducted and gone. We’ve been doing all of our jobs for the ACV value. You mean that other money is still available?”

The answer is absolutely 100% yes! That money is part of the project. The insurance company has an obligation not to pay for the depreciated value of the roof, but they have an obligation on an RCV claim to pay the full replacement cost value (RCV) of the roof. Which means that they have to pay the cost of a brand new roof at today’s rate.

And we believe that the first step when taking on any new prospective client and trying to present yourself to them and trying to present the services of your company, you should be educating your clients. Not only about insurance claims in general but about your company and your process and how the industry as a whole works when it comes to a property damage insurance claim. We think that a valuable nugget of free advice to pass along to your customer right away is to teach them the truth about recoverable appreciation. We think that you have an obligation as a contractor to make sure that every customer you come into contact with knows the truth about recoverable depreciation. And why is that? Consider the following:

There are only a few insurance companies that will actually go back and notify the homeowner later that the recoverable depreciation has never been claimed, and that the money is literally still sitting there on the table waiting for them to collect.

So with that in mind, how much money in total do insurance companies keep on a yearly basis in unclaimed recoverable depreciation, that in fact was owed to property owners for work that was performed on their properties?! We submit to you that the number is in the hundreds of millions – if not billions with a B.

How is that right to do?

We believe that contractors have an immense obligation in their current roles to help do something about that.

Going beyond that, when the final invoice is presented to the insurance company to collect the amount of recoverable depreciation that is old, keep in mind that if the amount of work performed was actually greater than – and more extensive than – the adjuster’s estimate that was written, the insurance company might just have an obligation to also pay for any increasing expenses. The best chance for getting the insurance company to pay more than what was previously offered (this because of additional work needed in order to complete the prescribed project), is to start by presenting a detailed, line-itemed, Xactimate estimate, written with solid experience, knowledge and understanding of how insurance claims are processed in general.

And for more on how to do that, you quite simply need to speak to us. Start by visiting us at

Stop leaving money on the table! We can help you win in this complex game.

Hope you’re having an awesome day!

Feel free to leave us your comments below.

Posted in Insurance Industry News, Storm Damage News
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5 comments on “The Issue of Recoverable Depreciation
  1. Chad says:

    Any idea how to get the Recoverable Depreciation when the insurance company says it won’t pay it? Going through this right now and I know this is an old post. Thanks ahead of time.

    • For sure. You simply need to submit an Xactimate estimate/invoice listing all line items that were performed, along with detailed documentation (photos, etc). And there is generally much more. Please submit your info to our contact us page and we will give you a call to learn about your situation. Or call us. We’d be happy to provide free advice and to help any way we can. Thanks a lot for your comment. 🙂

  2. Lihua says:

    Thanks for the explanation, that’s very helpful. In the end, does the home owner or the roof company collect the recoverable depreciation?

    • It is only released for work that has been incurred– or performed.

      It is sent to the property owner but is required to be paid to the contractor who performed the repairs, unless the property owner did the work themselves.

      Hope this helps! 🙂

  3. Brandy Brentlinger says:

    Our insurance adjustment was for $17k. Less recoverable depreciation of 4k and less $1500 deductible. And a check was cut fur the difference approx $12k. We found a contractor to do the work for 14k. We submitted the final bill for the recoverable depreciation. We were told we would not get back the full amount since the contractor did the work for less. I say we do. Who’s right? How do we collect if we are? Any help would be appreciated. The adjuster doesn’t seem to know what he is doing. This is for hail damage and our insurance is American family. Thanks

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