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:

• • • Actual Cash Value (ACV): After subtracting depreciation, this is your property’s value. What they think your 10-year-old roof is worth today. Spoiler: it’s usually much less than you need to replace it. 
    • Replacement Cost Value (RCV): This is what it would cost to replace the damaged item with something new. Sounds like a dream, right? But unless your policy explicitly states you have replacement cost coverage, prepare for a reality check—you’re most likely getting ACV. 

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:

• • • Age of the item or property (the older it is, the less it’s typically worth). 
    • Condition before the loss.
    • Useful life expectancy (apparently, your fridge is a ticking time bomb of value). 

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?