Recoverable Depreciation & Contents: The Theory Behind It All

If you have ever attempted to sell an item on sites like Craigslist or Depop, you know that buyers tend to have their own opinions on the validity of prices. What is poorly understood is that value, in theory, is not subjective at all. In fact, there is a method to the madness that intersects with larger market forces and simple equations. Understanding the science behind calculating the value of items in your home can prevent you from being cheated following a loss. While the extent to which CD and video game re-sellers try to exploit common ignorance by gipping you on the value of your gently-used items, you shouldn’t have to accept the same treatment from your insurance company. Not only are you dealing with high-stakes items like refrigerators and computers, but proper reimbursement is why your contents coverage is there in the first place.

The key to understanding the value of your home’s contents is understanding the concept of depreciation. The term is basically a shorthand for the financial value that an item has lost over time. For example, if you have the latest version in a series of smartphones, every day that it exists outside of its box, it loses a percentage of what you originally paid. This market value can be affected by the fact that electronics, technologically speaking, slowly degrade over time. The release of the next model in the series may also decrease its desirability, and ultimately, value. These factors are what make your contents claim trickier, but can be better-understood when broken down.

First things first, you begin with the original amount that you paid for an item. This value can be reaffirmed through receipts or retrieved via serial numbers, which can be facilitated by your appraiser. From this number, your insurance company then subtracts depreciation. Depreciation is calculated by multiplying the number of years you’ve had an item and the percentage rate at which the item loses value. Now you are left with what's referred to as the “actual cash value.” If your policy requires you to pay a deductible, then the deductible is subtracted from the actual cash value. You may be frustrated with the amount you have left. The good news is that depending on your policy, you may be able to recoup some of your losses through recoverable depreciation.

Recoverable depreciation is quite literally what it sounds like. The depreciated value is recovered by your claim, reimbursing the difference between the actual cash value and the amount that you paid. Typically, this payout is released after you’ve received the ACV and replaced the item. This wait, too, may be frustrating, but the reason is justifiable enough. The reimbursement of money lost by depreciation is affected by replacement cost. For example, if you paid $800 for your lost phone, which depreciated to $500, and the replacement cost for a similar model is now $700, then you would be compensated according to the following equation: $700 - $500 = $200. This way, even if you feel like you may be coming up $100 short in the grand scheme of your original payment, you were at least compensated appropriately for a replacement—the goal that contents coverage essentially sets out to achieve.

It’s completely understandable if your head is spinning. Whenever methods are mathematical, getting to the right point can be a tedious process, further complicated by uncooperative insurance companies. Most troublingly, a blanket rate of depreciation may be applied to your total collection of contents, with little-to-no consideration given to what specific items may be involved. This instance is particularly upsetting when your list of contents includes items that actually gain value over time, such as jewelry or crystal. When it comes to these kinds of items, it would behoove you to walk away with the actual cash value, but your insurer may try to negate that option by using a cross-contents blanket rate. Of course, insurance companies are also prone to being fickle when it comes to releasing depreciated funds to their insured. The good news is that compensating you fairly for your contents claim isn’t a course of action they can merely take it they feel like it. By getting the law on your side, your insurer will be held to its contractual obligation.

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