What does recoverable depreciation mean?

Recoverable depreciation is the difference between the actual cash value (ACV), or depreciated value, and the replacement cost of an item. Some insurance companies will pay a second claims check for recoverable depreciation after you have replaced or repaired your item or property.

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Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Written by Rachel Bodine
Feature Writer Rachel Bodine

Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent Daniel Walker

UPDATED: May 26, 2022

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Things to Remember

  • Recoverable depreciation is the difference between an item’s actual cash value (ACV) — or depreciated value —  and its replacement cost
  • If you have a replacement cost value (RCV) insurance policy, you will receive two checks when you file a claim — the first check is the ACV of your damaged property minus your deductible, and the second check is the recoverable depreciation
  • Recoverable depreciation only gets paid after you use the ACV check to replace or repair your items or property

Understanding how your insurance company will pay out is essential if you need to file a claim. For example, suppose you have replacement cost coverage. In that case, you may receive a check for recoverable depreciation after you replace or repair your property.

However, there are specific requirements you may need to meet to receive your recoverable depreciation check. Read below to learn how recoverable depreciation affects your insurance claims and what factors you should consider when replacing your damaged or stolen property.

What is recoverable depreciation?

Recoverable depreciation is the difference between an item’s actual cash value or depreciated value and its replacement cost. So when you file a claim under a replacement cost value policy, insurers often refer to recoverable depreciation.

Depreciation can occur based on an item’s age, condition, and newer models released since you purchased the item. For example, a car you paid $10,000 for may only be worth $7,000 five years later, depending on how well you take care of it and whether newer models have more advanced features.

While depreciation occurs with all items, there are some instances in which you can recover the value, like if you have an RCV insurance policy for your car or home.

If you have an ACV policy, the depreciation on your item is typically non-recoverable, meaning you will have to buy a lower-priced replacement or pay the difference between your damaged item and a new one out of your pocket.

In addition, some RCV policies limit the depreciation that the company covers. For example, you may recover depreciation for specific items or if your things get damaged a certain way.

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How is recoverable depreciation calculated?

There is no set formula for calculating recoverable depreciation. Therefore, the depreciated value depends on your insurance company and varies by company, policy, and item.

One common way to calculate recoverable depreciation is to determine an item’s useful life. Then, the insurance company can divide the item’s purchase price by the number of years it expects it to be useful, meaning the item will depreciate by an equal amount each year.

For example, if you purchase a new refrigerator for $1,500 with a useful life of 14 years, the fridge would depreciate by about $107 per year.

How does recoverable depreciation affect insurance claims?

If you have an ACV insurance policy, recoverable depreciation is unlikely to affect your claims. Instead, you would receive a payment from your insurance company that equals the depreciated value of your item minus your deductible.

On the other hand, if you have an RCV insurance policy, your claims process will work a little differently. For example, when you first buy your policy, you may need to provide the insurance company with receipts or other documentation showing the cost of your items.

If you need to file an insurance claim for any of your items, you will begin the claims process by filing as you usually would. An adjuster may visit your property during the claims process and assess damage to your items. If your claim gets approved, you will receive a check for the ACV of your items minus your deductible.

You will need to use the check to replace or repair your items to a similar make and quality. If the ACV check is not enough to cover your purchase or repair, you may need to pay the difference out of pocket. However, after you prove that you replaced or repaired your item, your insurance company will give you a second check for the recoverable depreciation.

Who keeps the recoverable depreciation check? Does the homeowner get the recoverable depreciation for homeowners insurance claims? Yes, the insurance company will pay the check for recoverable depreciation to the homeowner or other property owner, who can use the money to reimburse their out-of-pocket costs or pay for a replacement.

To give you an example of the process, let’s look at recoverable depreciation from USAA. If you have a 10-year-old roof damaged from a storm, USAA will write you a check for the value of the 10-year-old roof minus your deductible. Then, after you get the roof replaced with one of similar make and quality, USAA sends a second check to cover the recoverable depreciation of the roof.

How can you claim recoverable depreciation?

Your insurance company will likely have specific requirements to claim your recoverable depreciation check. For example, you may need to provide proof of purchase for your replacement item before a deadline. Your insurance agent or company will provide you with the details you need to claim your second check.

If you find a good deal on a replacement item, you may or may not pocket leftover cash. The amount of leftover cash depends on your insurance company’s policies, the item’s cost, your deductible, and the total amount paid by your insurer.

Other situations may affect your eligibility for recoverable depreciation, such as do-it-yourself projects. For example, some insurance companies may or may not allow you to repair your items or property, so you should understand the regulations regarding recoverable depreciation for do-it-yourself projects before taking it on.

There are a few reasons why insurance companies pay a recoverable depreciation check separate from the ACV check. First, it can help prevent insurance fraud and overpaying by allowing the insurance company to pay less to customers who may not need to replace their items or who can return their items for less than the ACV or original purchase price.

Additionally, the recoverable depreciation check gives policyholders an incentive to use it for replacing damaged or stolen items. If you use the check for another purpose, you can’t claim the recoverable depreciation.

If you are looking for homeowners or car insurance, check if the policy you’re buying is ACV or RCV and whether your depreciation is recoverable when you need to file a claim.

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