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Recoverable depreciation

Updated

Definition

Recoverable depreciation is the part of a replacement cost insurance claim that the insurer holds back from the first payment and pays once the repairs are finished and documented. It's the difference between the replacement cost and the actual cash value.

Also called: Depreciation holdback, Withheld depreciation

How the holdback moves on a roof claim

On a replacement cost claim, the money typically arrives in stages, and the last one waits on you:

  1. The adjuster's estimate sets the replacement cost, the depreciation and the deductible.
  2. The insurer pays the actual cash value minus the deductible.
  3. The homeowner pays you the deductible.
  4. You finish the roof and send a final invoice that matches the claim.
  5. The insurer releases the held-back depreciation, and the homeowner pays your balance.

Example: A claim prices a roof replacement at $20,000, holds back $5,000 of depreciation and applies a $1,000 deductible. The first check is $14,000, and the homeowner pays you the $1,000 deductible. When the roof is done, your final invoice shows $20,000 for the claim scope, $15,000 received and $5,000 due. The insurer releases the $5,000, and the homeowner pays you. The numbers are made up for illustration.

What it takes to get it released

The holdback is paid on proof that the work is done, so find out at the start of the job exactly what the insurer will want, from the claim paperwork or through the homeowner. Have it ready on your last day:

  • A final invoice in the adjuster's line items and units, with any approved supplements
  • Completion photos
  • The permit number and final inspection date, if the job had a permit
  • Any completion form the insurer or mortgage company uses, signed by the homeowner at your walk-through

Ask about deadlines too. If the policy sets a time limit for finishing repairs and claiming the holdback, a job that slips into next season can put the money at risk.

Recoverable or non-recoverable

Depreciation is recoverable only when the policy pays replacement cost. On an actual cash value settlement it's non-recoverable: the insurer won't pay it later, and the homeowner covers that gap if they want a full replacement. Look for the depreciation and its type on the insurer's estimate, and if it isn't clear, have the homeowner ask the insurer in writing before you build a payment schedule around it.

Common mistakes

  • Invoicing late. The holdback waits on your final invoice. Send it the day you finish.
  • An invoice that doesn't match the claim. Different units, lumped lines or a missing supplement invite questions before anyone pays.
  • Mixing in upgrades. Bill a homeowner's upgrade on its own invoice so the claim invoice shows only covered work.
  • Assuming the check comes to you. Expect it to go to the homeowner, sometimes with a mortgage company named on it too. Until the homeowner pays your invoice, it's money owed to you, not money you have.
  • Not tracking it. Treat the balance like any other accounts receivable item, with a due date and follow-ups, and trade a lien waiver for it when you're paid.

Settle open insurance supplements before the final invoice goes out, so one invoice closes the claim. Finish your punch list first, too, so the homeowner is ready to sign off. How to invoice roofing jobs covers the full sequence, including mortgage company checks and staged releases.

Go deeper

Roofing guideHow to Invoice Roofing Jobs (Including Insurance Claims)How roofers invoice retail and insurance jobs: allowances, ACV and depreciation checks, deductibles, supplements, mortgage checks and lien waivers.Roofing guideHow to Write a Roofing EstimateWhat goes in a roofing estimate: squares with pitch and waste, line items adjusters expect, code items, decking allowances, photos, warranties and payment terms.GuideHow to Collect Overdue InvoicesA contractor's plan for past-due invoices: a reminder schedule, a call script, payment plans, a final notice letter, late fees, liens and small claims.
Actual cash value (ACV)Actual cash value (ACV) is the value an insurer puts on damaged property at the time of the loss, usually figured as the cost to replace it minus depreciation for age and wear. On a roof claim, the first insurance check is typically based on it.Insurance supplementAn insurance supplement is a request, made on the homeowner's claim, asking the insurer to add work or quantities its original estimate missed. On a roof, it usually covers items found at tear-off or measured short, backed by photos, measurements and line-item prices.Accounts receivableAccounts receivable (AR) is the total your customers owe you for work you've done and invoiced but haven't been paid for yet. It's money you've earned but can't spend, which is why a busy month can still leave you short on cash.Punch listA punch list is the written list of small items still to finish or fix at the end of a job, such as touch-ups, missing trim or adjustments, that the contractor completes before the customer signs off on the work and pays the final balance.Lien waiverA lien waiver is a signed document in which a contractor, subcontractor or supplier gives up some or all of its lien rights on a property in exchange for payment. A waiver is either conditional or unconditional, and covers either a progress payment or the final payment.

See every term in the glossary