The following is an insurance claim question we answered for a policyholder through the United Policyholders Ask an Expert Forum.

Q. In my original claim, my insurance company said that my 98 year old mother had replacement coverage. We've gone through her contents and submitted a statement of loss. In our findings, most of her contents were 40, 50 or even 100+ year old collectables. In the subsequent settlement, the insurance company increased their payout; however, they now claimed over $30k of items under "non-recoverable" depreciation. How do you verify what is or what is not recoverable under this clause? The policy documents are very vague, tough to read even when you can find them.

A. Replacement cost coverage is often confusing to consumers. Often times the man on the street understanding of "replacement cost” is that in fact the policyholder should be paid the full replacement cost of an item in terms of today’s cost. In the real world, technology and upgrades often change an items cost and function. So it is not realistic to find or replace an item to its pre-loss function and condition. New for old is often problematic and is dealt with in a number of ways. Typically replacement contents policies have a provision that states the policyholder must actually replace an item before some determined amount of depreciation that was taken will be refunded. So the insured will be paid the actual cash value and then refunded the depreciation when a receipt is sent in. The problem of course is agreeing on the replacement cost of an item when the item that is destroyed cannot be compared to a new similar item. Then you have the issue of what the fair amount of depreciation should be taken based on age, usage etc.

For some items that are old or collectibles a commonly used insurance industry math calculation (replacement cost less depreciation = actual cash value) is often useless and insurance policies may have language that states they will pay the functional value of an item or what an item found in a similar condition and of like kind and quality that is for sale in the market where you live would cost. My guess is this is what your insurance company is saying they will pay a functional value thus no depreciation. Policy language will always rule, so read and ask questions. Remember all insurance settlements are negotiable. So do some haggling with the carrier. They want to settle your claim and they understand the art of reaching a settlement in a fair manner.  

If you have questions regarding disaster planning or any property insurance claim related issues please call 800.321.4488 or contact us to submit a question to one of our public adjuster insurance claim experts.