What is insurance depreciation?
Short answer. Insurance depreciation is the reduction an insurer applies to the value of damaged property for age, wear, and obsolescence, turning its replacement cost into its actual cash value. It affects home, auto, and other property claims, and on homeowners replacement cost policies it is usually paid back after repairs.
Across types of insurance
- Homeowners: line-item depreciation on building repairs and contents. Replacement cost policies let you recover it after repairs.
- Auto: a totaled car is valued at actual cash value from comparable sales, and some repair parts can be depreciated. There is usually no recoverable depreciation.
- Renters: contents only, at actual cash value or replacement cost depending on the policy.
- Landlord policies: some dwelling forms pay actual cash value only.
The three factors
- Age: years in use.
- Expected life: how long that type of item normally lasts.
- Condition: better or worse than typical for its age.
Why it is not a penalty
Depreciation reflects that a used item was worth less than a new one before the loss. Replacement cost coverage, which most homeowners policies provide for the house itself, exists so you can still rebuild with new materials.
Where homeowners feel it most
Roofs. They age faster than the rest of the house, so roof lines usually carry the largest depreciation on a storm claim, and older roofs are where insurers most often switch to actual cash value terms.
Related: ACV vs RCV and recoverable depreciation on a roof.