Depreciation and Betterment in Claim Settlement

[InsMgmt]

Was the property insured on an Actual Cash Value or Replacement Cost basis?

[R Levine]

The typical valuations on property are:
Replacement Cost - replace with like, kind and quality
Actual Cash Value - Replacement Cost less depreciation
Agreed Amount - Mutual agreement between Carrier and Insured as to the value of the property

A claim should be settled by the type of valuation on the policy. Be sure you read the policy. there are clauses that change how the claim will be paid. For example: Policy written on Replacement cost. Insured does not want to rebuild. Carrier will pay ACV.

[gregcw]

Should both betterment and depreciation apply on the replaced machine cost only or
both betterment and depreciation apply on the replaced machine cost and the labour/workmenship incur for the replacement ?

My understanding in the above situation is that depreciation would not apply in a replacement cost estimate or settlement, but that betterment may in a situation where 'like kind and quality' is no longer available. In this situation the insured could be charged for the 'betterment' portion of the settlement