How Insurance Companies Calculate Standard Depreciation
- Depreciation is an inexact system, and the values are often negotiable. As long as the values are documented and consistent with state law, insurers can decide for themselves how they will establish depreciation. The system one insurer uses may differ from the system used by another; two insurers can evaluate the same set of damages and yield two different values. Always ask your adjuster for the method she uses to calculate depreciation.
- Some companies publish valuation books for certain types of property. One of the most well known of these is the Kelley Blue Book for automobiles. Some insurance companies use the values published in these books, but many do not because they do not account for the individual qualities of the damaged item in question. In other words, book values are generalized for all items of that type, but the item in question may be of better or worse quality than the average.
- Depreciation tables list various forms of property and the standard percent of value they lose each year. For example, a color television might be listed with 8.3 percent annual depreciation, meaning it loses 8.3 percent of its value each year. An insurance company would start with the value of the item new, determine its age in years, multiply its age by the depreciation percentage and subtract that amount from the original value. The Claims Pages website has a sample depreciation table for reference.
- Many insurance adjusters are seasoned veterans of their trade and deal with depreciation everyday. Over time, they get a sense of what an item is worth and the rate it depreciates. While there might be a book value or depreciation table for use if needed, All Insurance Info states that many adjusters simply rely on their experience to make an educated guess about depreciation. Depreciation is, after all, subjective and negotiable to a certain degree.