Understanding depreciation in house insurance claims

Your house 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, “vétusté” in French.

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 (new for old-remplacement à neuf in French) 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 provided us with documentation (invoices).

However, this replacement cost coverage is limited to condition which depends on each insurance company and contracts.

Calculating depreciation

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.

The notion of Depreciation/vétusté in insurance is set by law for all insurance companies by article L121-1 du Code des Assurances :

« The indemnity due by the insurance company cannot exceed the value of the object insured at the time of the claim”

This is why an assessor is affected to a claim to assess the extent of the damages but also the depreciation of the object insured and damaged. The value of the object is calculated as follow:

Value of the object new – Percentage of wear and tear

Example: For an object new worth 10 000 € but with 40 % wear and tear, the insurance company will pay 6 000 € (10 000-40%).

The percentage of wear and tear can vary depending on:

• The life expectancy of the item. For example : for an item with a 10 year life expectancy, it would lose 10% of value per year.
• Characteristic of the object in regards to technological progress, lack of usage now, etc (mostly for electronic goods such as computer or tv who lose value quicker due to progress of technology- VHS to DVD player to Blue ray, etc)
• How old it is.

The assessor uses a table list on which you will find a part where all the type of equipment is on such as:

• plumbing
• Heating system and equipement
• Electrics
• Household devices ;
• Carpentry inside and outside
• Wood floors/carrelage
• paint/wall paper

The other column establishes for each equipment:

• Their life expectancy
• The excess, meaning no wear and tear for the first so many years.
• The percentage of wear and tear per year,
• The percentage of value left at the end of life expectancy

Example :

• Life expectancy for wall paper and paint: 7 years;
• Life expectancy for carpets: 7 years;

Exemple de table list :

However, these columns are used as guidelines but the final assessment of the wear and tear is left to the appreciation of the assessors. Some people take care of their house better than others!!

Certain object never loses value such as jewellery, valuables and can even take more value in time.

New for old/remplacement à neuf

To counteract or diminish this wear and tear, you can choose insurance contracts that have the “new for old” option. This is the case with Allianz (not for every insurance company).

With Allianz, if you have the “new for old” option and the depreciation is less than 25%, then we reimburse it all. If the depreciation is above 25%, then Allianz reimburse minus the depreciation that is above 25%.

E.g.: Your roof is destroyed in a storm but the assessor states in his report that it’s 20% wear and tear (depreciation/vétusté), then your insurance company reimburse it all as new for old (it is less than 25%). If the assessor state that the depreciation is 35%, then the insurance company reimburse the cost minus 10% (35-25) which is left for you to pay for.

This depends on who your insurance company is, so you must check your contract to see what % of new for old they apply if any!

Therefore, when you search for house insurance contract, make sure you ask the conditions of new for old. And contact me for a quote!!

Don’t hesitate to contact me for any other subjects such as inheritance law, tax, savings, funeral cover or quote on any insurances. And check out our web site www.bh-assurances.fr/en for my previous articles on the “practical pages” and register to my Monthly Newsletter.