Saturday, July 5, 2008

Wildfires, Depreciation and Contents Claims

Next are the most important two questions that exist concerning depreciation:

ARE YOU READY??

HERE THEY COME!!!

1. Who determines the correct amount of depreciation?

2. What method is used in determining depreciation?

Answer to Question 1:

The insurance company will determine the amount of depreciation that is subtracted from the replacement cost of your property UNLESS YOU CHALLENGE THEIR FIGURES.

Answer to Question 2:

A. Insurance companies and insurance adjusters use published depreciation tables to determine the useful life and depreciation of a vast assortment of property. I have posted depreciation tables in the Resources Section on my website that you can print off for yourself. I’ve also listed links that you can click on to see other depreciation tables.

B. Most adjusters and claims departments these days have sophisticated estimating software that has the depreciation tables built right into it. So, when the adjuster writes his estimate, he will enter certain data, like the age and condition of the property, and the estimating program automatically depreciates the property.

C. Lots of times, an adjuster will use his experience and just take a wild guess. This is sometimes known as “Gut Depreciation“. It’s a wild guess based on past experience in calculating claims. You might have heard this sort of guessing called a WAG (wild-a** guess) or a SWAG (scientific wild-a** guess) or an EWAG (educated wild a** guess). You would be very surprised how often a WAG, EWAG or SWAG is used in an insurance adjuster’s life. You’d also likely be surprised how often adjusters’ WAGs are accurate.

But now, let’s consider how this depreciation, RCV, and ACV stuff affects YOU in your claims.

A standard Homeowner’s Policy settles the Dwelling loss on RCV. However, it settles the Contents loss (sometimes referred to as Unscheduled Personal Property, or UPP) on ACV. Read your policy carefully to determine what kind of coverage you have.

Most insurance companies have an endorsement that you can buy that provides replacement cost valuation on your Contents. The premium is only a few dollars more, and you should NEVER be without this endorsement on your policy. If you find that you do not have this Replacement Cost (RC) coverage on your Contents, DO NOT LET ANOTHER 24 HOURS PASS BEFORE YOU ADD IT TO YOUR POLICY.

So, if you have a Homeowners loss, and you don’t have the RC endorsement, the adjuster is going to depreciate ALL of your contents. ALL OF THEM.

If you have a policy that has the Replacement Cost Valuation endorsement for Contents, the adjuster and insurance company is going to use depreciation to create something called a “holdback of recoverable depreciation.”

Remember Chapter One, “Water, Water Everywhere?” In that chapter, I told you about recoverable depreciation. My homeowners insurance company used this process in my water claim. They will use the same process in your Contents claim.

Our Homeowner Policy had a Replacement Cost Value (RCV) clause. Here’s what the policy says about RCV at the time of a loss:

“Conditions, How losses are settled.

2. Under Unscheduled Personal Property Coverages:

We will pay only the actual cash value of the damaged property until actual repair or replacement is completed.”

So, even if you have the RC Endorsement on your policy, the insurance company will hold back the recoverable depreciation until you replace your damaged property. If the adjuster doesn’t calculate depreciation correctly, the insurance company could withhold hundreds or thousands of dollars from you that you need to replace your damaged property.

Remember the reason I wrote the book? To show you how to collect hundreds or thousands of dollars MORE in settlement that you are entitled to collect?

Well, you are entitled to a VERY ACCURATE calculation of your CONTENTS loss.

Here are the things that YOU MUST DO.

1. Require the adjuster or the insurance company to provide you with a copy or copies of the exact depreciation tables that they used to determine the depreciation on every item of your Inventory list. Once you have the tables, you can compare each item to the tables to make sure that you are paid exactly what each item is worth.

2.. What if you find that your adjuster or insurance company has used the WAG/SWAG method? DO NOT ACCEPT IT. There are depreciation tables for nearly everything. Insist on receiving the depreciation tables that the adjuster or insurance company used on your claim.

You need to have access to depreciation tables that are industry accepted tables. So, here’s another resource for anyone with a computer and the ability to go to a website.

Go to: http://www.claimstar.net

At the top of the homepage is a horizontal bar that has words in it. Move your cursor to the far right until it is over the words “Tool Chest.” A drop-down menu will appear. Move your cursor down to “Depreciation Calculator.” Click on it.

Now, a page will open that allows you to find a depreciation schedule either by keyword search, or on another drop down menu that lists every type of property from different categories.

This is a SUPER tool! This tool will get you hundreds…possibly thousands of dollars more in your Contents claim, because the depreciation will be accurately calculated.

Once you prove that you’ve replaced the damaged property, the insurance company will release the holdback amount to you.

You see, it’s simple…but not easy!

4 comments:

groovology said...

Thanks so much for this. I had a major fire recently and, while no one has exactly told me a fib, no one at the insurance company or the contents management firm have been very forthcoming on the methods for depreciation or the procedures for cleaning/assessing/replacing/depreciating items, either. Very useful stuff.

Sherry Browning said...

Help! tried the Claims Star website; no "tool chest" or depreciation schedules. House fire--have to depreciate 1000+ contents. different way to access above? or another website with same info? Thank you.

Thomas said...

Sherry,

Have you hired someone to inventory and price your contents, or are you allowing the insurance company to do this?

Digitory Solutions Inc.
Content Inventory Documentation Service

Russell D. Longcore said...

Sorry, folks:

The Claimstar website changed after the book was published and the article was written.

Go here: www.claimspages.com

Click on "Tools," scroll down to "Deprecation Calculator." Click there.

Also, the "Forms" tab at my website has inventory forms for you. Go go: www.insurance-claim-secrets.com