Glossary

Depreciation

The loss in an item's value from age, wear and obsolescence, which an adjuster subtracts when pricing what a claim should pay.

Also called: claim depreciation, depreciated value

Depreciation is the value an item has lost to age, wear and obsolescence. In a claim, the adjuster estimates how much of the item's useful life is used up and subtracts that share from the cost of a new one. What is left is the actual cash value.

Most adjusters work from straight-line depreciation: age divided by expected life. A 10-year-old carpet with a 15-year life is two-thirds depreciated, so on a $6,000 replacement estimate it is valued at about $2,000. Estimating software supplies expected lifespans by material, and the adjuster can adjust for condition, so two roofs of the same age may be depreciated differently.

Depreciation is not always a permanent loss. When your policy pays on a replacement cost basis, the withheld amount is recoverable depreciation you can collect after the repair is finished. When the policy settles at ACV, or you never repair, it becomes non-recoverable depreciation.

Ask for the estimate with depreciation shown line by line. You can challenge a life expectancy or condition rating that does not fit, and some states restrict whether labor can be depreciated at all. The depreciation calculator: actual cash value vs replacement cost shows the arithmetic.

Last reviewed October 10, 2026

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Related terms

Actual cash value What an insurer pays for damaged property: the cost to repair or replace it today, minus a deduction for age and wear, so less than a new-for-old payment. Replacement cost What it would cost to repair or rebuild with materials of like kind and quality at today's prices, with no deduction for age or wear. Recoverable depreciation The part of a replacement cost payment an insurer withholds at first and releases after you finish the repair or replacement and send proof of the cost. Non-recoverable depreciation The age-and-wear deduction an insurer takes from a claim payment and never pays back, because the policy settles at depreciated value or repairs are not made. ACV roof endorsement An endorsement that pays wind and hail roof damage at replacement cost less depreciation, even when the rest of the home is settled at full replacement cost.

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Related tools

Depreciation calculator: actual cash value vs replacement cost Estimate what belongings are worth after depreciation, what an actual cash value check would be, and how much a replacement cost policy pays back later.