Depreciation

What is depreciation in insurance?

Depreciation is the decline in value of an item over time due to age, wear, and obsolescence. Every physical asset loses value from the moment it is put into use. In insurance, depreciation is the calculation adjusters use to determine actual cash value, what a used item is worth at the time of loss, as opposed to what a new one costs today.

How does depreciation reduce an insurance payout?

Each category of property depreciates at a different rate based on its expected useful life. A residential asphalt shingle roof with a rated life of 25 years is substantially depreciated by midlife. A kitchen appliance is worth a fraction of its purchase price by the end of its useful span. On an actual cash value policy, the adjuster subtracts all accumulated depreciation from the replacement cost before settling the claim. The result can be surprisingly low on older items, and policyholders sometimes receive payouts far below what replacement actually costs. As explained in our replacement cost vs. actual cash value guide, the policy type is the key variable in whether depreciation is a permanent reduction or a temporary holdback.

What is recoverable depreciation on a replacement cost policy?

On a replacement cost policy, depreciation is initially withheld as a holdback called recoverable depreciation. The insurer pays the actual cash value first, then releases the withheld depreciation after the policyholder completes and documents the repairs. Receipts from a licensed contractor must be submitted to the carrier before the withheld amount is released. If the initial check is taken without completing repairs, the withheld depreciation is forfeited. Replacement cost coverage only pays at replacement cost if the item is actually replaced and documented. This is a contractual condition and one of the most common misunderstandings about how large homeowners claims settle.

How does depreciation apply to Georgia roof claims?

Georgia homeowners frequently encounter depreciation disputes on roof claims. Carriers apply their own depreciation schedules, which can vary by material, installation method, and condition documented at inspection. For example, two homes with identical roof ages may receive different depreciation calculations if one used architectural shingles and the other used three-tab shingles, since carriers treat those materials differently under their schedules. Some policies include non-depreciation language for roofing through an endorsement, meaning the full replacement cost is paid without any age-related reduction. Others apply steep depreciation curves on older shingles. The deductible FAQ explains how deductible amounts compound the out-of-pocket exposure when depreciation is also applied.

Does depreciation apply to personal property inside the home?

Personal property, including electronics, furniture, appliances, and clothing, also depreciates, and each category follows its own schedule. For example, a five-year-old laptop and a new one carry very different actual cash values even if they perform identically, because electronics depreciate quickly under standard insurer schedules. Scheduled personal property endorsements and agreed value coverages exist for high-value items where standard depreciation would leave a meaningful gap. The Georgia scheduled articles FAQ describes how those endorsements work for jewelry, art, and other valuables. The premium for an endorsement that eliminates or limits depreciation on high-value items is typically modest relative to the coverage gap it closes. A coverage review with Olive Insurance Services, LLC can clarify which coverage type applies to a home, roof, and belongings and whether endorsements address the gaps.