Depreciation is the total decrease in an asset’s value over time based on several key factors which include the age of the equipment and its estimated useful life. Different insurance policies handle depreciation differently and it’s important to have a basic understanding of how to depreciate equipment when processing claims.
Assessing the depreciation of heavy equipment like construction equipment or trucking equipment is similar to assessing depreciation of other forms of equipment. But it's important to bring on an expert that specializes specifically in the valuation of heavy equipment when deciding how to depreciate equipment.
Keep reading to learn more about the role of depreciation in heavy equipment claims, the key factors affecting depreciation rates and the methods that are used to calculate it.
What Is Depreciation and Why Does It Matter in Heavy Equipment Claims?
It is often said that a car loses 10% of its value as soon as you drive it off the lot. The same can be said for heavy equipment and depreciation must be accurately calculated in claims as it is impossible to simply assign a cash value to a piece of equipment.
Equipment depreciation is a calculator that considers how much value a piece of equipment loses over its lifespan. In heavy equipment insurance claims, deprecation is often considered when determining the payout amount.
In heavy equipment claims where there is a total loss, the insurer will pay out the claim in one of two ways, based on how the policy is written:
- Actual Cash Value (ACV) is frequently defined by state regulation and is the market value of the vehicle or machine, not the depreciated value.
- Replacement Cost Value (RCV) is the cost to replace the destroyed unit without any deduction for age, mileage, use or conditioning.
Now that we've laid out the basics, let's discuss the factors at play when determining how to depreciate equipment.
Key Factors Affecting Heavy Equipment Depreciation Rates
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Your depreciation should always be assessed by a heavy equipment appraiser. When calculating heavy equipment depreciation, your appraiser has several key factors that they use to make their determination.
- Brand of equipment
- Usage hours
- Equipment cost
- Estimated useful life
- Estimated salvage value
- Obsolescence
These factors are some of the pieces used in the methodology of depreciating heavy equipment.
Heavy Equipment Specialists
The role of heavy equipment depreciation in claims processing is dependent upon the type of policy, the factors used to determine how to depreciate equipment and the method of depreciation used.
Veritas Administrators specializes in heavy equipment appraisals and offers claims handling services nationwide. Our specialists understand how to customize services to fit your needs and serve as an extension of your organization so that you can manage your claims with ease and agility.
