Recoverable Depreciation (RD)

What it means

When a carrier settles a replacement cost claim, it does not pay the whole replacement cost immediately. It pays the actual cash value first and withholds the depreciation. That withheld amount is the recoverable depreciation, and it is paid once the property has actually been replaced and the carrier has evidence of it.

The word doing the work is recoverable. Depreciation is withheld on nearly every claim; whether it can ever be recovered depends on the policy. A replacement cost policy makes it recoverable. An actual cash value policy does not, and the withheld amount is simply never paid.

Why it is structured this way

Replacement cost coverage promises to make the homeowner whole by replacing what was lost. If the carrier paid replacement cost up front, it would be funding replacements that in many cases would not happen, and the coverage would function as a cash windfall on ageing property rather than as indemnity.

Holding the depreciation back ties the higher payment to the outcome the coverage exists to produce. It is a condition of that kind of policy, not a delaying tactic, and framing it accurately with a homeowner turns a grievance into a task.

What releases it

Evidence that the work was done. In practice that means a final invoice corresponding to the approved scope, plus whatever completion documentation the carrier requires, and often photographs of the finished work.

Two things commonly stop it arriving. The first is that nobody submits the paperwork: the crew finished, the file moved on, and the homeowner assumes the carrier will pay when it is ready. It will not, because it is waiting.

The second is a mismatch between the final invoice and the approved scope. Work that was carried out but never approved has to be reconciled, and the file goes back into review. Supplements are the mechanism for getting additional work approved while the job is running, which is what keeps the closing paperwork clean.

The timing limit

Policies commonly require the work to be completed and the depreciation claimed within a period. The length varies by policy and by jurisdiction, so the number is something to read off the policy or confirm with the carrier rather than to recite.

The practical implication does not vary: a job that stalls indefinitely puts the holdback at risk, and a homeowner who has decided to take the first payment and postpone the roof should be told plainly that the rest of the money is conditional.

Common mistakes

Treating it as a bonus is the most common. It was always part of the settlement.

The second is assuming it arrives automatically. It arrives against documents that somebody has to send.

The third is not establishing early whether it is recoverable at all. On an actual cash value policy there is nothing to recover, and a homeowner planning around a second payment that will never come is being set up badly.