roof insurance claim process – questions
How to calculate Actual Cash Value and Recoverable Depreciation
Actual Cash Value example and formula
Let’s say you put a new $10,000 roof on your house 5 years ago and your roof was just destroyed by a hail storm. Let’s also assume your 5 year old roof was average asphalt roofing shingles, which lasts about 20 years. Because your roof was only 5 years old when the hail storm hit, the Actual Cash Value would be $7,500. Accordingly, the recoverable depreciation would be $2,500. This is the difference between the $10,000 replacement cost and the actual cash value.
Here’s the formula:
R x (E – C) / E = ACV
10,000 x (20 – 5) / 20 = 7,500
R = $10,000 (Replacement cost or purchase price of the roof)
E = 20 years (Expected life of the roof)
C = 5 years (Current life of the roof)
Actual Cash Value is calculated by subtracting the current age of your roof from the expected life of the roof (e.g. 20 – 5, which = 15), times the replacement cost or purchase price of the roof (15 x $10,000, which = 150,000), divided by the expected life of the roof (150,000 / 20, which = 7,500.