Depreciation recovery

Posted: Tue Feb 17, 2015 07:07 am Post Subject:

You can spend as much as you want to buy a new residence, but insurance doesn't work that way. If you want the recoverable depreciation on the damaged property, you must fully repair the damage. Otherwise all you will be paid is the "Actual Cash Value" of the damaged property -- which is the replacement cost minus the depreciation.

This is the contractual arrangement you and your homeowner's insurance company agreed to abide by. You are not forced by your insurance contract to rebuild. You can take the ACV settlement and walk away. You may still have a contract with your mortgage lender, however, that requires you to maintain the property in good condition, and you will have to honor that contract, too.

Insurance does not exist to make you better off than you were before a loss (you cannot "profit" from insurance). It exists to restore you to the condition you were in prior to the loss. This is known as being "indemnified". You had a home in a particular condition prior to the tornado, and you need to put it back in the same condition, or tear it down and rebuild it using the insurance company money available.

But there is nothing in your homeowner's contract that promises 100% indemnification without something from you in return. And that something is stated as "replacement" of the dwelling. It does not mean you can go buy another home somewhere else as a replacement for your living space in order to collect the depreciation. It means you must rebuild on the same spot with like kind and quality.

Can you upgrade when you rebuild? Of course, but the insurance company will not pay for granite counter tops and custom cabinets which did not exist prior to the loss. That you must do with your own money.

You're upset because there was additional physical damage to your surroundings that you believe detract from the value of your property. Well, that may be true, but that's not covered by insurance. You bought your home for $xxx,000. It is worth whatever someone else is willing to pay for it at the time you want to sell it.

Insurance does not exist to protect you from declining home values due to high interest rates, a bad economy, banks going out of business, stock market crashes, or tornadoes making the area around your home not as nice as it once was. It exists to put you back into that home after it has been damaged and repaired -- or to give you money to walk away from it if it is unrepairable. In your case, there is more money available if you make repairs than if you simply walk away, and leave someone else to deal with the damaged property.

You can always try to negotiate a larger ACV amount with the insurance company. It still won't provide you with the fully depreciated amount of your loss.