Obsolescence coefficient: principle and assessment.

When resolving a claim, the expert commissioned by the insurer usually indicates an obsolescence coefficient. Meaning, justification and calculation method of this important element of your compensation.

Capital video: What is a deterioration coefficient?

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Definition of obsolescence

We classify as “obsolete” something that has aged, something that wears out due to repeated use or poor maintenance, or even obsolete based on its age and the surpassing of its technical criteria, and that therefore suffers depreciation. Therefore, we can define obsolescence as the loss of value of a property as a result of its aging and wear. It intervenes in determining the value of the insurance when resolving an incident.

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Why apply a deterioration coefficient?

Based on the principle of compensation according to which insurance cannot be a source of enrichment for the insured, the compensation paid by the insurer cannot exceed the value of the insured property at the time of the incident (article L121-1 of the Insurance Code) . To respect this principle, it was decided that an amount corresponding to the obsolescence of the insured property would be systematically deducted from the compensation paid.

Obsolescence assessment

Your evaluation results from experience. The expert estimates obsolescence and expresses it through a rate (or coefficient) that varies according to the nature of the property and its age. Experts base their estimates on tables that indicate the obsolescence rate and the applicable maximum limit, which can vary depending on the insurer. Thus, movable property will generally be subject to obsolescence of around 10% per year with a maximum of 80%. Computer equipment will be subject to obsolescence of approximately 20/25% annually, with a cap of 80%.

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Compensation, which is generally based on use value, will be calculated by deducting from the new replacement value a reduction corresponding to obsolescence. The method of calculating obsolescence is explained in general terms based on the nature of the goods and the guarantee formulas signed in the general conditions of the contract.

Good to know : Very old and degraded properties have the obsolescence applied to them limited (often to 80%). The insured is then compensated by paying what experts sometimes call “residual value,” a concept derived from the book value of a company’s assets after their depreciation is complete.

Regarding individuals, we can distinguish 3 types of properties for which the estimation of the obsolescence coefficient differs.

Movable property

Everything that constitutes “furniture”, represented by the total capital insured on the contents of the home, is made up of elements that do not have the same useful life;

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  • “Furniture” furniture (beds, wardrobes, chests of drawers, tables, chairs, sofas and armchairs, etc.) have a longer lifespan than household appliances (5 to 8 years maximum).
  • Clothing and bedding also have rapidly decreasing value due to wear and tear as clothing goes out of style.
  • Electrical and electronic devices also have a limited useful life (planned obsolescence) and quickly become technically obsolete due to the constant advancement of new equipment (as proof, remember that for tax purposes the administration allows the depreciation of a computer over 3 years ).

The expert evaluates the deterioration little by little according to the nature of the object, its age and its state of maintenance (hence the interest in being in possession of the purchase invoice and maintenance/repair invoices)

Real estate

Regarding buildings and constructions, in multi-risk housing contracts they are subject to a guarantee in “reconstruction value as new”. However, in this case, the expert determines two values:

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  • The market or use value, or deduced deteriorated reconstruction value: is the price that could have been obtained from the sale of the property in the local real estate market before the disaster (estimation made by a notary or a professional based on the price half of m²). From the market). In fact, initially, and until the insured has provided proof of the reconstruction/repair (presenting the paid repair invoice), compensation is based on the cost of the reconstruction on the day of the accident, less the deterioration preserved by the expert. and within the time limit of the market value (if this is lower).
  • The replacement value: secondly, if this amount is insufficient to carry out the work, and provided that the reconstruction is completed within a maximum period of two years from the incident occurring, the insurer will pay an additional compensation called “new value”. and Limited to 25% of the initial market value, deducting obsolescence.

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Example : Take the case of a villa destroyed by a fire and the value of rebuilding it in an identical way is estimated at 200,000 euros. The expert estimated the deterioration at 25%. Its deduced dilapidated reconstruction value is therefore: 200,000 x 75% = 150,000 euros. Since the contract includes the “replacement value” guarantee, the owner will initially receive compensation of 150,000 euros, then, if the reconstruction is completed within 2 years, 25% corresponding to the replacement value will be paid. the presentation. of reconstruction bills paid. On the contrary, if the deterioration is estimated at 30%, that is, 60,000 euros, with a compensation limit of the “replacement value” of 25%, you will only receive 50,000 euros for this concept.

Good to know : Generally, the replacement value of buildings is provided for in the contract in the basic guarantees. But when it comes to furniture, it is usually offered as an option.

precious objects

Jewelry, precious stones, fine pearls, art objects (statues, valuable paintings, sculptures, bronzes, etc.), collections, antiques, etc. All these goods are not, by their very nature, subject to obsolescence, and if they are in good condition, their value cannot bear a reduction.

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