Your dwelling and most of its contents – such as your roof, laptop, and furniture – may
lose value over time due to factors such as age and wear and tear. This loss in value is
commonly known as depreciation.
Under most insurance policies, claim reimbursement begins with an initial payment for
the Actual Cash Value (ACV) of your damage, or the value of the damaged or
destroyed item(s) at the time of the loss.
If you have replacement cost coverage included on your policy, you may be able to
receive additional money to cover the depreciation of these items. If this is the case,
reimbursement may involve two or more payments – one for your initial payment based
on the ACV of your items and then additional payment(s) once you repair and/or
replace the damaged or destroyed items and provide us with documentation.
Here’s more information on how we calculate depreciation and determine whether or
not you may be entitled to any additional payment(s).
Generally, depreciation is calculated by evaluating an item’s Replacement Cost Value
(RCV) and its life expectancy. RCV represents the current cost of repairing the item or
replacing it with a similar one, while life expectancy is the item’s average expected
lifespan.
For example, let’s say your laptop was destroyed in a fire. You bought the laptop two
years ago and it was in normal condition for its age before the fire. A similar laptop is
sold in stores today for $1,000 (the RCV). This laptop has a life expectancy of five
years, meaning it loses 20% of its value each year. Because your laptop was two years
old, it had lost 40% of its value before being destroyed by the fire. Therefore, the actual
cash value (i.e., the value at the time of the loss) of your laptop is $600. Here is the
calculation:
This calculation method also applies to most of the structural components of your
dwelling or building that wear out over time, such as the roof. 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.
Please keep in mind that the condition of an item may also factor into the depreciation
calculation.
In most instances, you should notify your Claim professional of your intent to recover
your depreciation within 6 months or 180 days of the date of loss. In some states, and
depending on your policy, the length of time to do so may be longer or shorter. If you
aren’t sure about the amount of time you have, just ask your Claim professional to
provide guidance.
If you have replacement cost coverage, here are the next steps you should take if you
decide to recover your depreciation:
Your potential reimbursement is governed by the replacement cost. Please keep in
mind that when repairing or replacing an item, you can recover only the amount you
actually spend. For instance, in our earlier example we determined the RCV of your
laptop was $1,000. If you purchase a replacement laptop for $900 and submit a request
for the recoverable depreciation, your insurance company will reimburse you $300 –
the difference between the ACV of your previous laptop ($600) and the cost of your
new one ($900).
Keep in mind, you may purchase a more expensive item to replace the one you lost,
but we can reimburse you only up to the replacement cost. In the previous example, we
determined the ACV of your 13-inch laptop was $600, and the cost of a similar laptop is
$1,000. If you purchase a 15-inch laptop for $1,500 and submit a request for
recoverable depreciation, you will be reimbursed $400 – the recoverable depreciation
on your original laptop.
If you find that you cannot repair or replace damaged or destroyed item(s) for the
replacement cost established on your estimate, please contact your Claim professional
before repairing or replacing the item(s). If you decide not to repair or replace some of
your damaged items, you may not be able to submit a request for additional payment(s)
for those items.
Your dwelling and most of its contents – such as your roof, laptop, and furniture – may
lose value over time due to factors such as age and wear and tear. This loss in value is
commonly known as depreciation.
Under most insurance policies, claim reimbursement begins with an initial payment for
the Actual Cash Value (ACV) of your damage, or the value of the damaged or
destroyed item(s) at the time of the loss.
If your home is uninhabitable and you have to temporarily relocate after a covered loss, your homeowners’ policy may reimburse you for any resulting increases in your normal day-to-day living expenses.
If your policy provides Loss of Use coverage, your policy will reimburse you for Additional Living Expenses (ALE) for the period of time reasonably required to make your home habitable again. This time period is commonly referred to as the “period of restoration.”
As climate change accelerates, Canada is witnessing a growing frequency of extreme weather events, including floods that have devastating impacts on communities and homes. Traditionally, standard home insurance policies in Canada cover a wide range of risks, such as fire, theft, and liability, but they typically do not include protection against overland flooding. This has made flood insurance an increasingly vital addition for homeowners across the country.
