Property claims glossary
What is depreciation on a property claim?
Depreciation is the reduction in an item's value from age, wear and condition, applied line by line to turn replacement cost into actual cash value. It decides how much of a claim is paid up front, and whether it can be recovered later depends on the policy and, in some states, on statute or regulation.
Worked example · fictitious claim
A 10-year-old water heater with a 20-year life costs $1,600 to replace, so 50% depreciation is $800. A 2-year-old floor with a 20-year life costs $6,000 to replace, so 10% depreciation is $600. Depreciation on the two lines totals $800 + $600 = $1,400.
How it affects a settlement
Depreciation is subtracted from replacement cost to set the first payment. On a replacement cost policy it is usually paid later, once repairs are complete; on an actual cash value policy it is not paid at all.
In practice
The reduction in property value from age, wear, and condition. In claims it is the bridge between RCV and ACV, and it must be applied line by line: a roof depreciates differently from a water heater. Whether depreciation is recoverable after repairs is governed by the policy and, in some states, by statute.
Related
Actual cash value (ACV) · Recoverable depreciation · Property claim walkthrough · property claims glossary