What is the definition of recoverable depreciation in insurance?
Short answer. Recoverable depreciation is the amount an insurer subtracts from a replacement cost claim for age and wear and holds back until the repair or replacement is completed, then pays once you show the work is done. It exists only on replacement cost coverage; on actual cash value coverage the same deduction is non-recoverable.
The definition in parts
- Replacement cost value (RCV): what it costs today to repair or replace with materials of like kind and quality.
- Depreciation: the reduction for age, wear and condition.
- Actual cash value (ACV): RCV minus depreciation. The first check is usually ACV minus the deductible.
- Recoverable: the depreciation can be collected later if conditions are met, usually finishing the work within the policy's time limit and submitting proof such as a final invoice.
A worked roof example
Hypothetical numbers: RCV $14,000, depreciation $4,200, deductible $1,500. First check: $14,000 minus $4,200 minus $1,500 equals $8,300. After the roof is replaced and the final invoice is sent, the insurer releases the $4,200. Total from insurance: $12,500, which is the full cost minus the deductible.
Conditions that commonly apply
- A time limit to complete the work or notify the insurer, often 180 days, though some policies allow longer.
- Proof of completion: an invoice, and sometimes photos or a certificate of completion.
- Payment only up to what was actually spent. If the work costs less than estimated, the release may shrink.
The opposite term
Non-recoverable depreciation is subtracted permanently, as on actual cash value roof coverage, roof payment schedules and some endorsements for older roofs. See ACV vs RCV, and for collecting it, recoverable depreciation on a roof.