Recoverable depreciation: how to get your withheld money back

What is recoverable depreciation?

Most contents settlements show two figures for each item. Replacement cost is what it costs to buy the same thing new today. Actual cash value is what it was worth used, which is replacement cost minus depreciation.

Say you lost a couch that costs $1,200 to buy new today. If the insurer decides it had lost half its value to age and wear, the used value is $600. On a policy with recoverable depreciation, you are paid the $600 first, and the other $600 waits for you to replace the couch.

The gap between them is depreciation. On many policies, part or all of it is held back rather than taken away, and paid once you replace the item. That held-back amount is recoverable depreciation. Whether you have it depends on your policy.

Why do insurers hold the money back?

A replacement cost policy promises to pay what it costs to replace your things. Until you've replaced something, the insurer only knows what it was worth used. So it pays that first and waits for proof of the purchase before paying the rest. It isn't a penalty, and the money doesn't go away while you rebuild, as long as you claim it in time.

Find out which kind of policy you have

Look at your declarations page, the summary at the front of your policy, for the coverage on your personal property. It is sometimes labeled Coverage C.

• If it says actual cash value, you are paid the used value, and the depreciation is not paid back.
• If it says replacement cost, you are usually paid the used value first, and the insurer holds back the depreciation until you replace the item. That held-back amount is called recoverable depreciation.

If you can't tell, ask your adjuster directly: "Is my contents coverage replacement cost, and is there recoverable depreciation on my claim?"

What it looks like on one item

Try it with your own item in our depreciation calculator.

How to claim it back

1. Find your deadline. There's usually a time limit, covered below. Nothing arrives to remind you, so write the date down.
2. Replace the item. It usually doesn't have to be the same brand, just something of similar kind and quality. Check your policy's wording if you are unsure.
3. Keep the receipt. It's your proof of the purchase and what you paid.
4. Send receipts to your adjuster, matched to their lines. Quote the line number from their schedule next to each receipt, so nobody has to guess which purchase replaces which item.
5. Check what comes back. Compare each payment with the amount held on that line, and ask about any line that's missing.

What counts as replacing an item?

Generally, buying something of like kind and quality: a washing machine for a washing machine, a sofa of similar size and build for a sofa. A newer model, a different brand, or a store's own brand usually counts. Some policies accept a used replacement, and some pay only what you actually spent on it.

What usually doesn't count is buying something unrelated with the money, like a TV in place of a lost dining table. If you want to replace something with a different kind of item, ask your adjuster first and get the answer in writing.

What if you don't replace something?

You don't have to. You keep the used value you were already paid, and the held-back amount on that line simply isn't paid. Plenty of people choose not to replace everything, especially things they rarely used. It helps to decide early which lines you will replace, so you spend your time and money where the most is held back.

Is there a time limit?

Usually, yes. Many policies give you somewhere around six months to a year from the date of the loss to replace things and claim the rest. Some states allow longer after a declared disaster, and some insurers will extend the deadline if you ask before it passes. Yours is in the loss settlement section of your policy. If you can't find it, ask your adjuster for the date in writing.

What is non-recoverable depreciation?

It's depreciation you don't get back. On an actual cash value policy, all of it is non-recoverable. On some replacement cost policies, certain things are paid at used value only, often items that weren't working or were never replaced. Your adjuster's schedule usually marks which lines have depreciation you can recover and which don't.

Things worth knowing

• You don't have to replace everything at once. Depreciation is usually released line by line, as you send receipts.
• If you replace something for less than the replacement cost, you are usually paid what you actually spent, not the full amount.
• Sales tax on the replacement is often part of what can be recovered, so keep receipts that show it.

What if the money doesn't arrive?

Payments for recoverable depreciation can take a few weeks after you send receipts. If one is slow, write to your adjuster, list the lines you sent proof for and the date you sent it, and ask which are still open and why. Keeping it in writing gives you a record if the deadline gets close.

If a line is refused, ask for the reason in writing too. The answer usually points to something fixable, like a receipt that doesn't clearly match the item, or a replacement they don't consider similar.

Where Indemnia helps

Indemnia reads your insurer's schedule and shows how much is held back on each line. When you buy a replacement, it matches the receipt to the line it proves, so you can send your adjuster a clear list of what's owed.