How do insurance companies depreciate things?
The basic method
Most property depreciation is a straight-line estimate: age divided by expected life, times replacement cost. The adjuster needs three inputs: what it costs new today, how old it is, and how long that type of item is expected to last. The result is actual cash value, which is what the insurer owes when the policy pays actual cash value, or before replacement cost is released.
Where the numbers come from
- Life expectancy tables. Estimating software and carrier guidelines assign typical lifespans to categories such as shingles, carpet, appliances, or electronics.
- Condition. An item in better or worse shape than its age suggests can be adjusted up or down.
- Caps. Some guidelines limit how far an item can be depreciated, so even very old things keep some value.
- Market value. For some property, mainly vehicles, insurers look at what comparable used items sell for instead of using a formula.
House versus contents
On the building, depreciation is applied line by line in the repair estimate, so the roof shingles, the carpet, and the paint each carry their own figure. Contents are listed item by item with age and category. On a replacement cost policy, both kinds are usually recoverable once you repair or replace.
How to push back
Ask for the age, life expectancy, and condition the adjuster used on any line that looks high. Wrong ages are the most common mistake, and receipts, permits, or dated photos fix them.
Related: ACV vs RCV roof claims and recoverable depreciation on a roof.