What is Depreciation?
Insurance glossary entry on BeCovered.ai for the term "Depreciation": Reduction in value from age, wear, or obsolescence used in claim settlements on ACV basis. Scope: plain-language meaning for coverage discussions; confirm definitions on your policy forms.
Reduction in value from age, wear, or obsolescence used in claim settlements on ACV basis.
Understanding Depreciation
Depreciation methodology varies by line—roof surface payments on ACV policies are contentious. Recoverable depreciation may be payable after repairs on replacement cost policies.
Examples
- Roof claim pays ACV first; recoverable depreciation released after proof of replacement.
- Auto total loss uses market comparables implying depreciation curve.
Common Questions About Depreciation
Who calculates depreciation?
Adjusters use guides and judgment—policyholders can dispute with contractor estimates and state complaint processes.
Does depreciation apply to liability payouts?
Third-party property damage settlements negotiate market value—different from first-party ACV on your property.
Related Insurance Types
Related Terms
Actual Cash Value (ACV)
The value of property at the time of loss, calculated as replacement cost minus depreciation.
Replacement Cost
The amount needed to replace damaged or lost property with new items of similar kind and quality.
Claim
A formal request to your insurance company for payment or coverage for a loss or policy event.
Coverage Limit
The maximum amount your insurance company will pay for a covered claim.