What is recoverable depreciation?
Short answer. Recoverable depreciation is money your insurer withholds from a replacement cost claim until you repair or replace the damaged property, and then pays to you. It equals the difference between the replacement cost and the actual cash value of the damaged items.
The formula
Replacement cost value minus actual cash value equals the depreciation. On a replacement cost policy, that depreciation is recoverable.
A simple example
Hail damages your roof. The estimate to replace it is $12,000. Because the roof is 10 years old, the insurer applies $4,000 of depreciation. Your deductible is $1,000.
- First payment: $12,000 minus $4,000 minus $1,000, which is $7,000
- After the new roof is installed: $4,000
- Total from the insurer: $11,000, and your share is the $1,000 deductible
Four rules to remember
- You must actually repair or replace.
- You get no more than you actually spend, up to the estimate.
- There is a time limit in the policy.
- It does not apply to property your policy pays at actual cash value, such as roofs under some ACV endorsements.
Why it matters
Some homeowners never collect it because they do not know it exists or they miss the deadline. Ask your adjuster about it on day one, and write down the date by which the work must be finished.
Related: recoverable depreciation on a roof, ACV vs RCV, and Georgia roof claim deadlines.