What Is Recoverable Depreciation on an Insurance Claim? 

Posted on May 2, 2022


Hayden Haskins | author

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ICHQ | Site Author

When your personal property is damaged by a storm or other covered event, you would expect your insurance company to provide you with the necessary funds to replace it. However, the unfortunate reality is your insurance company may not value your property as highly as you would. 

If you are choosing to file a claim to replace your items, you may run into a concept called recoverable depreciation. To find out if you have recoverable depreciation clause in your homeowners’ insurance, consult your insurance policy and consider hiring an experienced property damage lawyer to help you navigate the claims process. 

The lawyers at Insurance Claim HQ know how to properly calculate the value of your items and make sure you have the coverage you need. Our team is experienced in fighting back to make sure the insurance company pays you what your items are truly worth.  

In this article, we will cover the principles and calculation of recoverable depreciation, as well as what to look out for when filing to hold the insurance company accountable.  

What is Recoverable Depreciation? 

Recoverable depreciation is the difference between the actual cash value (ACV) and the replacement cost of an item. Under a qualifying homeowners insurance policy, policyholders can claim recoverable depreciation on the difference in these two values. 

The key to understanding the value of your home’s contents is understanding the concept of depreciation. As time goes on, the cash value of most items decreases based on its assigned “lifespan.” When filing a claim, your insurance company will assign a usefulness lifespan to any claimed objects, which will then help determine depreciation. 

For example, if you have the latest smartphone, every day outside of its box it loses a percentage of value compared to what you originally paid. This value can be affected by the fact that electronics slowly become obsolete over time. The release of the next model in the series may also decrease its desirability, and ultimately, value. Even if you paid $800 for it last year, you might only be able to get $500 for it today. 

Several factors can make your contents claim trickier, but can be better understood when broken down into a simpler equation. However, it is important to remember that not all insurance companies use the same equations to determine depreciation, so be sure to stay aware of these differences while filing. 

Related: Recoverable Depreciation & Roofing: When your Insurer Gives you the Runaround 

How to Calculate Actual Cash Value and Recoverable Depreciation 

When it comes to calculating recoverable depreciation, you begin with the original amount that you paid for an item. This value can be confirmed through receipts or retrieved via serial numbers, which can be obtained by your appraiser.  

From this number, your insurance company then subtracts depreciation. Depreciation is calculated by dividing the original value of the item by its “lifespan” to find the depreciation per year. Then you multiply that number by the years you’ve owned the item and subtract from the original value.  

The equations for calculating this look something like this: 

Depreciation per year = original value / estimated lifespan in years 

Actual cash value = original value – (number of years x depreciation per year) 

 Now you are left with what’s referred to as the “actual cash value.” If your policy requires you to pay a deductible, then the deductible is subtracted from the actual cash value coverage. 

You may be frustrated with the amount you have left. The good news is that depending on your homeowners insurance policy, you may be able to recoup some of your losses through recoverable depreciation. 

Recoverable depreciation is exactly what it sounds like. The depreciated value is recovered by your claim, reimbursing the difference between the actual cash value and the amount that you originally paid.  

Typically, payouts for recoverable depreciation claims are paid out in two parts. The actual cash value check is sent when you file your initial damage claim for the actual cash value, and the recoverable depreciation check arrives after you’ve replaced the item and provided proof through receipts.  

This wait may be frustrating, but the reimbursement of money lost by depreciation is affected by replacement cost. 

The equation for figuring out recoverable depreciation looks like this: 

Recoverable Depreciation = replacement cost – actual cash value 

A Simple Example: Replacing Your Damaged Smartphone With a Comparable Model 

Let’s go back to our smartphone example. You paid $800 for your lost phone, which depreciated to $500, and the replacement cost for a similar model is now $700. 

If you do not have a recoverable depreciation clause in your insurance policy, you could only claim the actual cash value of $500, minus any deductible. 

If you do have a recoverable depreciation clause, in addition to the $500 in actual cash value, you would also be able to receive an additional $200 in recoverable depreciation (replacement cost of $700 minus actual cash value of $500), for a total compensation of $700. 

The amount between the replacement cost and the original cost—in this case, the $100 difference between the original cost and the replacement cost—is not recoverable, something that frustrates many. However, keep in mind, even if you are ending up with slightly less than you originally paid for your lost item, you are still getting more compensation than others because of this coverage. 

Ways Your Insurance Company May Try to Devalue Your Claim 

There are many opportunities for policyholders to make back a good majority of their money with a recoverable depreciation clause in place. However, there are also several ways that your insurance company may try to avoid paying you the full amount you deserve. Using small tricks or techniques, insurance adjusters can undervalue your claim, so stay alert for any of the following. 

  • Blanketing Value: Your insurance may try to give you an estimate for the overall value of all damaged property rather than for each item’s individual value. This is an easy way for them to undervalue some items without claimants knowing. 
  • Claiming Cheap Replacements: Unfortunately, there are some people who attempt to pocket the money from such claims through insurance fraud by replacing expensive property with cheaper replacements. This is an easy excuse for an adjuster to use to devalue your claim, so be sure to provide the necessary receipts and comparisons when filing. 
  • Overly Simplified Math: Adjusters may try to round down to make “cleaner numbers” for your claim’s value. Be sure to get the exact worth of your items to avoid being cheated out of any potential compensation. 

An insurance company is, first and foremost, a business, and they will do their best to protect their bottom line. If you suspect that your home insurance company is trying to unfairly cheat you out of what’s rightfully yours, call Insurance Claim HQ. Our team isn’t afraid to stand up against the insurance company for you, so you can focus on getting back to normal. 

Insurance Claim HQ: Protecting the True Value of Victim’s Claims in Louisiana 

If the concept of recoverable depreciation is confusing or frustrating to you, you are not alone. At Insurance Claim HQ, we have helped clients navigate their coverage, calculate the replacement cost value of their items, and fight back against the tricks and traps the insurance company uses to cheat claimants out of their compensation. Our team of experienced property damage lawyers are here to hold the insurance company accountable for your damaged items and get you the help you need. 

If you or a loved one are attempting to claim recoverable depreciation and need legal assistance, call our team at 844-587-8395 or contact us today to schedule your free consultation.    


The content provided here is for informational purposes only and should not be construed as legal advice on any subject.