A replacement cost policy pays in two instalments, and the second one has to be claimed. The amount held back is recoverable depreciation, and it is frequently left unclaimed.
The first payment is the depreciated value
The adjuster prices the repair at current cost and then deducts depreciation for the age and condition of whatever was damaged.
That deduction produces the actual cash value, which is what the initial payment reflects.
The difference between the two figures is held by the insurer rather than removed from the claim entirely.
On a large roof or contents claim, the holdback can represent a substantial share of the total settlement.
The holdback is released against proof of work
Once repairs are completed, the policyholder submits invoices and the insurer releases the remaining amount up to the cost actually incurred.
The requirement exists to stop a policy paying more than the loss where the property is never repaired at all.
If the final cost comes in lower than estimated, the release is limited to what was genuinely spent.
Work done by the owner rather than a contractor is usually reimbursable for materials, with labour treated differently depending on the policy wording.
Deadlines are shorter than people expect
Policies impose a period within which repairs must be completed and the recoverable amount claimed, often measured in months rather than years.
Extensions are commonly available on request, but they must be requested before the deadline passes rather than afterwards.
Contractor availability after a widespread event routinely exceeds those windows, which is exactly when an extension matters most.
The period runs from the date of loss in some forms and from the first payment in others, and the difference is worth checking early.
Not everything is written on a recoverable basis
Roof schedules, older personal property and certain outbuildings are frequently settled at actual cash value with no recoverable portion at all.
Where that applies, waiting for a second payment means waiting for something the policy never provided.
The declarations page and the endorsements attached to it are what distinguish the two situations.
Knowing which basis applies before a loss also changes how much a household needs to hold in reserve for its own share of a repair.
Documentation determines the outcome
Invoices that itemise work against the same line items as the estimate make the release straightforward, while lump-sum invoices invite questions.
Photographs taken during the work support claims for concealed damage discovered once the repair was under way.
Policyholders who keep records aligned to the estimate recover the holdback with far less friction than those reconstructing it afterwards.