How Does Recoverable Depreciation Work for a Roof Damage Claim?

Do you have a roof damage claim that you already filed or going to file soon? Do you keep hearing terms like "depreciation" and "recoverable depreciation"?

The insurance claim process for roof damage follows clear steps. But the steps and all the terms are super confusing if you've never been through the process before. 

And once a homeowner gets their insurance estimate after their claim is approved, the big question revolves around recoverable depreciation. This is especially true for how it works. 

It’s a pretty simple answer, but it requires some understanding before getting there. So, let's break it all down. 

For over 35 years, Bill Ragan Roofing has helped homeowners navigate the confusion and technicalities when filing a roof damage insurance claim. Let's start with what roof depreciation is, how it's found, and go from there. 

By the end of this article, you'll know the answers to the following questions:

• What does roof depreciation mean?
• How is roof depreciation calculated? 
• What is recoverable depreciation?
• How does recoverable depreciation work for a roof damage claim?
• Do you get to keep leftover money from recoverable depreciation?

What does roof depreciation mean?

Depreciation is the amount a roof’s value has decreased over the years from wear and tear. Simply put, every year that passes takes value off your roof in the eyes of the insurance company. 

However, the amount of value taken off depends on the lifespan of the roofing material. So, a 20 year asphalt shingle will depreciate in value faster than a 30 to 50 year standing seam metal roof. 

How is roof depreciation calculated? 

Insurance companies use a simple calculation to determine how much a roof has depreciated based on the number of years passed. All you have to do to get a rough idea of how much your roof depreciated is to divide the roof's current age by the expected lifespan of the roofing material. 

However, every insurance company has their own way to calculate depreciation, even though it gives them the same number. 

Here's an example of from Travelers explaining how depreciation is calculated: 

"If your dwelling has a 25-year composition shingle roof, it would depreciate at 4% a year under normal conditions. If the roof is 10 years old at the time of your loss and it requires replacement, we would subtract 40% depreciation (10 years x 4% a year) from your replacement cost estimate to determine the ACV of your roof."

What is recoverable depreciation?

Recoverable depreciation is when you can recover the lost value of your old roof from the insurance company once it's replaced. However, this is only possible with a Replacement Cost Value policy (also called RCV). 

After your claim is approved, you'll get the actual cash value of your roof, which is the depreciation amount that the roof is worth today. Then the insurance sends a second check for the depreciated value of your roof once the job is completed, which is the recoverable depreciation. 

However, getting the recoverable depreciation is a process that requires an experienced roofer, following specific scope of work requirements, and proof. 

How does recoverable depreciation work for a roof damage claim?

When your roof damage claim is approved with an RCV policy, the insurance company provides an estimate with the scope of work. They'll also send a payout, but it won't be enough to cover everything initially. 

The first check is only for the actual cost value of your roof while the insurance company holds back the recoverable depreciation. After finding a roofing contractor and supplementing anything missing on the claim, you'll get your roof replaced per the final scope of work. 

Once the job is done, your roofer will provide photo documented proof that the scope of work was done per the claim for you to submit to the insurance company. As long as everything checks out, the insurance company sends another check with the recoverable depreciation that covers the rest of the new roof’s cost.

But if you don’t get the work done or don’t follow the scope of work exactly, the insurance company doesn’t have to give you the depreciated part of the claim. This leaves you paying out of pocket for everything else left that the actual cost value payment didn't cover. 

Do you get to keep leftover money from recoverable depreciation?

As I just said, a roof must be replaced in accordance with your claim paperwork to get recoverable depreciation. Unfortunately, some homeowners think they can leave stuff off on purpose and try to keep extra money.

But failing to follow the scope of work and then requesting the check for depreciation is insurance fraud. That's the big reason why insurance companies require proof before releasing the recoverable depreciation check. 

Now, some homeowners do this inadvertently because the roofing contractor didn’t follow the scope of work correctly. However, a reputable roofing contractor asks to see your insurance paperwork to avoid this happening. 

In fact, I won’t work with a homeowner if they won’t show me their insurance paperwork. Sometimes it's because don’t they know how the process works or they don’t know who to trust, which is understandable in the roofing industry.

But if someone is actively trying to hide it, they're usually up to something I don’t want to be a part of. Trust me, your insurance company will not make your life easy if you try it. 

What you need to know about the insurance claim process for roof damage

After reading this article, you know what roof depreciation is, how it's calculated, what recoverable depreciation is, and how it works. Just remember, you don't get to keep any leftover money from recoverable depreciation and trying to do some could lead to fraud. 

But as long as you hire a reputable roofer and show them your paperwork, you'll have nothing to worry about. However, recoverable depreciation is just one piece of the insurance process. 

There's much more you need to know when filing a roof damage claim with your insurance company. That’s why I wrote another article breaking down everything homeowners need to know about the insurance process. 

Check out 7 Things You Need to Know About the Insurance Process for Roof Damage to learn what you can expect when filing a claim for roof damage.