Enter your ZIP Code
to get insurance quotes in your area

Wrong zip code

What is Recoverable Depreciation?

As an essential concept in the insurance industry, a lot of people ask about what recoverable depreciation is and how it impacts them. Knowing what it is can be an immense benefit, and it is critical that you understand how recoverable depreciation works. Depreciation is the term used to describe the lost value of an asset over its life. When people sign insurance policies, they are getting insured for the replacement cost of whatever items are covered. This is true for things like your home, but also true for the property and assets that you own.

What Is Recoverable Depreciation?

We all have items and things that decrease in value over time, and in many cases recoverable depreciation can be claimed if you file an insurance claim. When some or all of your depreciation can be claimed, it is called recoverable depreciation.

How Does Depreciation Work?

When people purchase a homeowner’s insurance policy, or other types of insurance policy that utilize depreciation, each item that is covered is assigned a value. Your home is assigned a value, as well as the contents and components inside of your home. All of these things have a high likelihood of declining in value over time, mostly due to wear and tear over time. This loss of value is known as depreciation.

Most people who file homeowners insurance claims are reimbursed for the actual cash value of the property that has been damaged. ACV, or actual cash value, is how companies measure the value of a property that is insured. This is not the same as insurance for the replacement cost value of a home or personal belongings. The replacement cost value is the actual cost to replace an item or home at what is called its pre-loss condition.

How Is Recoverable Depreciation Calculated?

Recoverable depreciation is part of replacement cost coverage. If you file a claim for property damage, you could be eligible for reimbursement to cover the depreciation of the affected items on the claim, as well as the actual cost value. When this happens, the depreciation of affected personal belongings or items may be considered recoverable. The recoverable depreciation of an object is the difference between its replacement cost and its actual cash value.

YearActual cash valueRecoverable depreciation

Your insurance research here helps you know how to evaluate an items replacement cost, as well as its useful life. The amount of time the item is expected to last is divided by the cost of the item to determine each year's depreciation.

To break this down into mathematical equations, if the replacement cost for a refrigerator is $1,000, and the refrigerator is supposed to last for four years, each year will see a depreciation of $250. If you own the refrigerator for two years, the total recoverable depreciation would be 2 x $250, or $500. The actual cash value would be the replacement cost of the refrigerator, minus the total depreciation. This puts the actual cash value in this case at $500 as well.

In addition to recoverable depreciation, there is also non-recoverable depreciation. Non-recoverable depreciation is the amount of the depreciation that is deemed to be ineligible for reimbursement under your insurance plan. If a person purchases a non-recoverable insurance plan, their insurance company will pay the actual cash value of the items that you file claims for if approved. This means that recoverable depreciation is not paid for.

Nonrecoverable depreciation is important to note if you have an actual cash value policy. This type of policy will only pay for the depreciated amount of your property if it is damaged, destroyed, or stolen. With this type of plan, the non-recoverable depreciation amount is the same as the total depreciation amount. Some programs have multiple parts, which are covered in different ways. It is possible to have a replacement cost insurance policy where some of the items that are covered are only covered for their actual cash value. Due to this, it is essential to read your plan to get the information you need in case an emergency happens.

How To Claim Recoverable Depreciation

To claim recoverable depreciation, you will need a replacement cost policy. The first step to do is to look at your plan to make sure that the items you are looking to make a claim on are not insured in only an actual cash value way. Many policies have a mix of both non-recoverable and recoverable depreciation insurance options.

How recoverable depreciation is paid on a damaged roof
Replacement cost $10,000
Subtract depreciation (8 years old / 20 year lifespan = 40%) -$4,000
Actual cash value $6,000
Subtract deductible -$500
Net claim (first payment) $5,500
Add recoverable depreciation (second payment) +$4,000
Total claim amount $9,500

Once you know that the item is covered for its replacement cost, you will be able to file a claim. Double-check your claim to make sure that you are getting the actual replacement cost for the item. If you are not, contact your insurance provider to determine why that is. With the replacement cost policy, the payment the insurance company makes should include the recoverable depreciation. Having an insurance plan is critical, and using the free quotes on this website can help you find the best prices on the plan you need. Check to see if it is an actual cost value, replacement cost insurance plan, or another type of insurance policy. Use this information to select the best insurance plan for your needs.

5.0out of 58 user reviews


It's look like replacement cost plan is much more expensive then actual cost value one. The terms seems to be far too appealing, there should be some cons.
But how can I precisely determine what amount of time will my item supposed to last? Can I delegate this to my insurance agent or for objective evaluation I should turn to other persons?

Add new comment

This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.