Understanding Depreciation Estimates for Your Property Insurance Claim
When there is a storm event such as the flooding in the Pensacola, Destin, Gulf Breeze and the Ft. Walton Beach areas we always get questions about how depreciation works. As public adjusters, we deal with this type of situation all the time when we are managing a policyholder’s claim. Deprecation is figured in a number of ways depending on who is making the calculations. As an example; in the insurance adjusting field, the text book example is to come up with a percentage based on the age of an item and its full life expectancy. So if an item is one year old and the average life is 20 years the percent to be applied for deprecation is 5%. If the cost of the item new is $5,000 then $250.00 in deprecation should be taken for each year of life. If an item is 5 years old and the life expectancy is 15 years then 33% would be reasonable.
But remember, there are a number of depreciation tables in use. The IRS may have one and the insurance company may have its own. There is no set-in-stone rule on depreciation as it is somewhat of an art form. Generally, depreciation should be based on usage. As an example; a family with five children will more likely have more wear and tear on their household items that a couple with no children.
Many states have adopted the “broad evidence rule” which basically says that all things need to be considered to determine the fair amount of depreciation to be applied. Depreciation is very negotiable. So if you believe the depreciation is unreasonable and you can make a case that the damaged item(s) are worth more, talk with the claims adjuster. If they will not agree, see if you have an appraisal clause in your policy. You can use this clause to appraise the actual cash value of an item covered by insurance.
If you have questions regarding any property insurance related issues please call 800.321.4488 or contact us to submit a question to one of our public adjuster claim experts.
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