What Is Recoverable Depreciation?

Recoverable Depreciation: What It Means for ACV & RCV Policies

If you’ve ever filed a property damage claim, you’ve likely heard the term recoverable depreciation and promptly Googled it. Don’t worry, you’re not the only one. 

Understanding recoverable depreciation is critical to making sense of your insurance payout. Whether your policy is based on Replacement Cost Value (RCV) or Actual Cash Value (ACV), recoverable depreciation plays a big role in the payout of your insurance claim. In this guide, we’ll break down what it actually means, how it’s calculated, and how it affects your bottom line.

What Is Recoverable Depreciation?

In simple terms, recoverable depreciation is the amount your insurance carrier withholds from your initial claim payment until repairs or replacements are completed.

When you suffer property damage, your insurance carrier often sends an initial payment based on the depreciated value of what was damaged (this is called ACV). The rest of the money—the amount they deducted for age, wear, and tear—may be recoverable once you prove the work is done.

That’s the recoverable depreciation.

Not all policies include it. Some are non-recoverable, meaning that depreciation is deducted and never reimbursed. That’s why knowing what kind of policy you have matters.

ACV vs. RCV: What’s the Difference?

Before you can understand how depreciation works, you need to know the difference between ACV and RCV:

Replacement Cost Value (RCV)

RCV covers the cost to replace your damaged property with new materials of a similar kind and quality. With RCV, no depreciation is deducted. If your repairs cost $50,000, that’s what your policy should pay.

Actual Cash Value (ACV)

ACV covers the depreciated value of your property. You get paid based on what the property was worth at the time of the damage, even if it’s less than what you originally paid for the item.

Replacement Cost Value (RCV)

  • Pros: Better coverage, fewer surprises.
  • Cons: Higher premiums.

Actual Cash Value (ACV)

  • Pros: Lower premiums.
  • Cons: You might be left covering the difference out-of-pocket.

If you have an RCV policy, you may be eligible to claim recoverable depreciation once the repairs are done. If you have an ACV-only policy, what you’re paid initially is all you’ll get.

Why Does Recoverable Depreciation Exist?

From the insurance carrier’s perspective, it’s about accountability. If they paid everyone the full RCV up front, some people might take the check and skip the repairs.

For property owners, it’s a double-edged sword:

It’s designed to encourage you to actually restore your property while protecting carriers from overpaying. But unfortunately, many property owners don’t realize they need to claim the depreciation, and end up leaving money on the table.

Common Misconceptions

Let’s clear up a few myths we hear all the time:

Bottom Line

Recoverable depreciation may sound like insurance jargon, but it directly impacts how much money you walk away with after a loss. Understanding how it works—and what your policy actually covers—can be the difference between being made whole and being left with a financial gap.

Not sure what kind of policy you have? Let Premier Claims take a look! 

Submit your policy for a free review today!

 

Read More Trending Articles
Navigating Insurance Deductibles
Importance of Acting Promptly After a Date of Loss
Recoverable Depreciation: RCV and ACV Policies Explained

"*" indicates required fields

Name*
Consent*
This field is hidden when viewing the form
This field is hidden when viewing the form

Are You Underinsured?

The Silent Risk Lurking in Your Business Insurance

When was the last time you reviewed your property insurance policy? If you’re like most business owners, the answer is probably “too long ago.” Unfortunately, complacency could cost you everything. Recent market changes—skyrocketing construction costs, supply chain delays, and increasing natural disasters—mean your coverage from two years ago may not cover you today.

In the last two years, the cost of construction has exploded. According to a report by the Associated General Contractors of America, construction material costs rose 10.1% in 2022 alone. This sharp spike could mean the cost to rebuild or repair your property is significantly higher than when you first signed your policy. If your policy was written based on outdated values, you could pay out of pocket to cover the difference. There is no need to panic, though; our team is here to give you the tools to protect your property and your business best. 

Understanding Your Insurance Policy

What “Replacement Cost” Really Means (And Why It’s Misleading)

Many business owners falsely believe replacement cost coverage will cover the total cost of rebuilding their property, regardless of market changes. In reality, the term “replacement cost” only applies to the maximum amount of coverage explicitly listed in your policy. It doesn’t automatically adjust for inflation or increasing material costs. If the limits in your policy haven’t been updated to reflect current market values, you’re left exposed. 

The Underinsurance Epidemic in Commercial Properties

According to a study by Marshall & Swift/Boeckh, 75% of commercial properties in the United States are underinsured by an average of 40%. This staggering statistic means most businesses facing a catastrophic loss will find themselves unable to rebuild or repair their property fully. Even worse, those same businesses might not even realize they’re underinsured until they file a claim—potentially leaving them on the hook for tens or hundreds of thousands of dollars in unexpected costs.

No business or person should have to go through this. While our current insurance climate may not be in favor of the insured, Premier Claims is here to fight for your right to a fair claim and an adequate policy.

When Disaster Strikes

Natural disasters aren’t a hypothetical risk. In 2024 alone, there have been 20 confirmed weather/climate disaster events in the United States, “with losses exceeding $1,000,000,000 each,” according to the National Centers for Environmental Information. This includes everything from hurricanes and floods to wildfires and tornadoes—events that often devastate businesses and lead to major insurance claims.

Unfortunately, underinsured businesses are far less likely to recover. The Federal Emergency Management Agency (FEMA) estimates 40% to 60% of small businesses never reopen after a disaster. For those with insufficient coverage, the financial burden is simply too great.

Updating Your Policy Fell Through the Cracks

Running a business is no small feat. With countless responsibilities on your plate—handling operations, growing your customer base, and managing employees—reviewing your insurance policy typically doesn’t make the top of the to-do list. And that’s completely understandable.

For many business owners, the insurance policy they signed years ago feels like a safety net. It’s easy to assume that it will continue to protect your business, no matter how much time passes or how the market changes. After all, you should be able to trust your insurance carrier has your best interest in mind. At least, you would think!

The problem is that policies don’t automatically update to reflect your property’s changing needs. It’s not your fault if you didn’t know; no one’s given you a reason to look. 

 Regularly reviewing your policy might seem unnecessary, especially if you’ve never experienced issues with your carrier. With the rapid changes in the industry and the increasing frequency of natural disasters, we recommend an annual review of your coverage to keep up with reality.

The Real Solution: Regular Policy Reviews

The good news? Preventing underinsurance is relatively easy. Regular policy reviews, ideally every year, ensure your policy reflects the current needs of your property, thereby keeping you and your business protected.

Our team of legal professionals provides complimentary policy reviews to try to identify any gaps in your coverage. If necessary, it may be worth discussing adding an Inflation Guard Endorsement and ACV coverage to your policy. 

Inflation Guard Endorsement

A rider that automatically adjusts your policy limits to account for rising construction costs.

Actual Cash Value Coverage

A policy provision that compensates policyholders for the current market value of damaged or lost property, rather than replacement cost. ACV takes into account depreciation, meaning the payout reflects the item’s value at the time of the loss. 

Take Action Before It’s Too Late

Underinsurance is a risk no business can afford to ignore. The consequences of insufficient coverage are severe—from devastating financial losses to permanent business closure. Rising construction costs, natural disasters, and the complexities of modern insurance policies make reviewing and updating your coverage more important than ever.

Not sure if you’re underinsured? Don’t wait until the next disaster to find out.

Contact our team today for a free policy review!

Read More Trending Articles
Commercial Property Insurance Endorsements
The Claim Killer No One Talks About: The Date of Loss

Depreciation in Insurance Claims: Are You Getting Short-Changed? 

Understanding Depreciation in Insurance Claims: Are You Getting Short-Changed? 

When your property is damaged and you file an insurance claim, you might think you’ll get exactly what it’s worth. But, as many policyholders quickly discover, the insurance carrier has a clever little trick up its sleeve—depreciation. You know, the convenient way of making your ten-year-old roof worth about as much as your morning coffee. 

What is Depreciation?

Depreciation is the gradual loss of value that happens to almost every tangible object over time—your car, your home, and, yes, your precious belongings. But in insurance claims, it’s more than just a natural process. It’s how your insurance carrier can turn a “brand new” sofa you bought five years ago into a “gently-used bargain bin special” when you’re seeking compensation. 

In simpler terms, depreciation in insurance claims allows the insurer to pay you less than the replacement cost of the damaged property, factoring in how old or worn the item is. In theory, this sounds fair. But let’s face it: When the payout doesn’t come close to replacing your ruined items, it can feel like a punch to the gut. 

Actual Cash Value (ACV) vs. Replacement Cost Value (RCV)

The magic happens when the insurance carrier uses these two terms:

Isn’t it funny how insurance carriers love to toss around the phrase “Actual Cash Value” as if it’s a gift? Here’s your shiny check, but don’t spend it all in one place. To learn more about the difference between ACV and RCV, read our full blog: Recoverable Depreciation: RCV and ACV Policies Explained.

How Depreciation is Calculated (And Why You Should Care)

Depreciation in insurance claims is typically calculated based on factors like:

However, here’s where things get tricky—insurance carriers get to decide how quickly your items depreciate. Their “schedule” or depreciation is often a mystery, leaving you wondering why your once $2,000 couch is now worth $200. Isn’t it comforting how they seem to know the exact lifespan of every single item in your home? 

What Can You Do About It?

Now that you’re armed with the basics of depreciation, let’s talk about how to stop feeling like you’ve been tricked out of a decent payout. 

  1. Review Your Policy Carefully: Make sure you know whether your policy covers ACV or RCV. If you’re stuck with ACV, consider upgrading to a replacement cost policy. This could cause your premium to go up; however, it could save you thousands in the long run. 
  2. Document Everything: The way to an insurance carrier’s kryptonite? Proper documentation! They cannot deny coverage or value if value is provable. Keep receipts, photos, and any proof of value for your property. The more proof you have, the harder it is for them to lowball you. 
  3. Challenge the Depreciation: Yes, you can fight back! Many policyholders don’t realize depreciation calculations aren’t necessarily set in stone. If you think the insurance carrier has depreciated your property unfairly, you can dispute it. Have a public adjuster, like those at Premier Claims, or an appraiser evaluate your items to ensure you’re not getting short-changed. 
  4. Understand Recoverable Depreciation: Some policies offer recoverable depreciation, meaning you can get reimbursed for the depreciated value after you replace the item. Don’t leave extra money on the table!

Don’t Let Depreciation Drain Your Claim

At the end of the day, depreciation is a tool, but it is not necessarily in your favor. Insurance carriers use it to reduce payouts, often at your expense. With knowledge and some strategic action, you can help protect the value of your claim. Remember, when your insurance adjuster hands you an ACV check, don’t be afraid to ask: Is this the best you can do?


Read More Trending Articles
The Claim Killer No One Talks About: The Date of Loss
Navigating Insurance Deductibles
Recoverable Depreciation: RCV and ACV Policies Explained