Recoverable vs. Non-Recoverable Depreciation Explained
Read more → from the replacement cost. Whether you can recover that depreciation depends on your policy type. Understanding this distinction can mean the difference between getting the full cost of repairs and being stuck with a significant shortfall.
What is depreciation in insurance claims
Depreciation is the reduction in value of your property due to age, wear, and condition. When your insurer prices a repair, they calculate the full Replacement Cost Value (RCV) and then subtract depreciation to arrive at the Actual Cash Value (ACV). For example, if new cabinets cost $15,000 and they are depreciated 20% for age, the ACV is $12,000.
The $3,000 difference is the depreciation amount.
Recoverable depreciation
If you have a Replacement Cost Value policy, the depreciation is recoverable. This means the insurer initially pays you the ACV amount, and after you complete repairs and submit documentation, they release the depreciation as a second payment. Using the example above, you would receive $12,000 initially, complete the repairs, submit receipts, and then receive the remaining $3,000.
The total payout equals the full replacement cost.
Non-recoverable depreciation
If you have an Actual Cash Value policy, or if your RCV policy lists certain items as non-recoverable, the depreciation is gone. You receive only the ACV amount with no opportunity to recover the rest. The $3,000 in our example would never be paid.
You would need to cover that gap out of pocket to complete repairs at full quality. Some policies also make depreciation non-recoverable if you do not complete repairs within the policy's time limit.
Time limits for recovering depreciation
RCV policies set a deadline for recovering depreciation, commonly 180 days to one year from the date of the initial payment. If you do not complete repairs and submit documentation within this window, the recoverable depreciation becomes non-recoverable. Repair delays from contractor availability, material backorders, or supplementWhat Is a Supplemental Claim and When to File OneA supplemental claim is a request to add items to your existing insurance estimate after the original scope was written. Supplements are standard i...
Read more → approvals can push you close to this deadline.
Track your dates carefully and request an extension in writing if needed.
What to do
Check your declarations pageHow to Read Your Insurance Declarations PageYour insurance declarations page is a one or two page summary that contains the most important details of your policy. Knowing how to read it befor...
Read more → to confirm whether your policy is RCV or ACV. If it is RCV, note the deadline for recovering depreciation. Begin repairs as soon as possible after receiving your initial payment.
Keep all receipts and invoices organized. Submit depreciation recovery documentation promptly after repairs are complete. If you are running close to the deadline, contact your insurer in writing to request an extension before it expires.
See how this applies to your property
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