12
Nov

Dealing with property damage can be confusing. Hopefully this will help you understand how the insurance companies calculate your initial property claim payment.

If there is coverage for your claim, the first payment you receive will be the Actual Cash Value (Replacement Cost Value minus Depreciation) minus your Deductible.

Example 1

Five years ago, you purchased a new roof for your home. It was damaged during a recent wildfire and is going to cost $7,000 to install a new roof today. This is your Replacement Cost Value. Normal wear and tear over the last 5 years has reduced the value of your roof by $1,050 (or 15%). This is your Depreciation. Your policy also has your deductible, which is $1,000. Therefore, your payment amount would be ($7,000-$1,050)-$1,000 = $4,950.

Example 2

Two years ago, you purchased a new couch. Unfortunately, it was also damaged during the wildfire and is going to cost $2,000 to purchase a new one today. This is your Replacement Cost Value. There has been normal wear and tear to your couch over the last 2 years due to daily use, which has reduced its value by $400 (or 20%). This is your Depreciation. Since both your roof and couch are part of the same claim, you only have to pay your deductible once. Therefore, your payment amount would be $2,000-$400 = $1,600.

Please note if you have replacement cost coverage, you will be required to submit proof of purchase or repairs (receipts or invoices) in order to be reimbursed the depreciation that is initially deducted from your insurance company payment. You’ll generally have several months from the date of the cash value payment to purchase replacements; consult with your adjuster regarding the timeframe.  

There are line items you will want to pay attention to in your property claim estimate.

• Quantity (QTY) is the amount of material or time needed.
• Unit is the cost of material, labor, or equipment for each unit.
• Overhead & Profit (O&P) is included in a repair estimate when the repair or replacement may involve a general contractor.
• Replacement Cost Value (RCV) is Quantity x Unit Price + Overhead & Profit.
• Age/Life and Condition (COND.) is the items age/how long you have had the item and its condition.
• Dep% and Depreciation (Deprec.) is the reduction in value of property over time due to age, use, and condition of item.
• Actual Cash Value (ACV) is what you would pay for the item at today’s cost minus depreciation.
• Paid When Incurred (PWI) are items (i.e. haul debris) that my not be necessary in the repair of your property, but will be reimbursed to you after the expense is incurred.
• Labor Minimum is added labor to perform a minor repair, including transportation, setup, and various other contractor costs.

Becoming familiar with these items will aid you in the understanding of your repair estimate. If you experience difficulty in any part of your claims process, you may want to enlist the services provided by a public insurance adjuster. They can ensure you receive a fair settlement of your claim and help explain the claims process in greater detail.

Lastly, the following are some commonly used measurements that you may want to reference during the claims process:

EA: Each                                  SQ: Square

LF: Linear Foot                         HR: Hour

SF: Square Foot                       DA: Day

SY: Square Yard                       WK: Week

CF: Cubic Foot                         MO: Month

CY: Cubic Yard                         RM: Room

If you have a mortgage on your house, the check for repairs will generally be made out to both you and the mortgage lender. As a condition of granting a mortgage, lenders usually require that they are named in the homeowner’s policy and that they are a party to any insurance payments related to the structure.

This is so the lender, who has a financial interest in your property, can ensure that the necessary repairs are made.

When a financial backer is a co-insured, they will have to endorse the claims payment check before you can cash it. Depending on the circumstances, lenders may also put the money in an escrow account and pay for the repairs as the work is completed. Show the mortgage lender your contractor’s bid and let the lender know how much the contractor wants upfront to start the job. Your mortgage company may want to inspect the finished job before releasing the funds for payment to the contractor.

If your home has been destroyed, the amount of the settlement and who gets it is driven by your policy type, its specific limits and the terms of your mortgage. For example, part of the insurance proceeds may be used to pay off the balance due on the mortgage. And, how the remaining proceeds are spent depend on your own decisions, such as if you want to rebuild on the same lot, in a different location or not rebuild at all. These decisions are also driven by state law.  

You may get multiple checks from your insurer as you make temporary repairs, permanent repairs and replace damaged belongings. If you’re offered an on-the-spot settlement, you can accept the check right away. Later, if you find other damage, you can reopen the claim and file for an additional amount. Most policies require claims to be filed within one year from the date of disaster; check with your state insurance department for the laws that apply to your area.

The examples and perspective in this article are the opinion of Claim Ally. Claim Ally Does Not practice law nor does it provide legal advice.