What is recoverable depreciation?

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Written by
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UPDATED: 2021-09-30T20:30:21.744Z
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A beautiful home at sunset with cheap homeowners insurance.

As a homeowner, you’ve probably already learned terminology you didn’t know existed before you bought a house. Today we’re going to introduce you to another new term: recoverable depreciation.

Your house is likely the biggest purchase you’ll ever make. While no one wants to think about something bad happening to their home, it’s important to protect your investment if the unthinkable does occur.

That’s why it’s so important to get the best homeowners insurance for your needs. To that end, let’s cover everything you need to know about recoverable depreciation, including the definition of recoverable depreciation, its impact on your homeowners policy, how it’s calculated, when you need a recoverable depreciation clause, and where to find the best rates on homeowners insurance.

One of the most important ways to make sure you’re getting the best homeowners insurance rates is to compare multiple quotes. You can get several homeowners insurance quotes with our free search tool right now.

The Definition of Recoverable Depreciation

Your homeowners insurance policy is set up by assigning a monetary value to everything covered by that policy. The term depreciation refers to the expectation that these items will all decline in value over time.

When you make an insurance claim, you’re usually reimbursed for the actual cash value of the items. This includes the reduction in value that is assumed through depreciation.

Recoverable depreciation clause is the difference between how much it costs to replace an item, and the actual cash value the insurance provider assigns that item.

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Example of Recoverable Depreciation

For example, say you purchased a new stove three years ago. At that time, the stove cost you $750. If that stove is damaged by a cooking fire and you make a claim with your homeowners insurance company, they will calculate the value of the stove with depreciation cost if the damage is covered by your policy. There are certain things that homeowners insurance might not cover.

Let’s say they determine that the three years of wear and tear have made the actual cash value of the stove $450. This is the amount of what you will be reimbursed with. However, you can’t buy a replacement stove of equal quality for $450. This is where recoverable depreciation comes in.

If your policy provides protection for recoverable depreciation, it can make up the difference between the replacement cost and the actual cash value of your stove ($300).

Types of Homeowners Insurance Policies

To help you better understand the recoverable depreciation clause, let’s break down two categories of homeowner’s insurance: Actual Cash Value and Replacement Cost Value. Then we’ll examine the relationship each of these has with recoverable depreciation.

Actual Cash Value Policies

An actual cash value policy will protect your home and possessions and reimburse you some of the money needed to repair your home in the event of damage. The actual cash value deducts the amount of money believed to be lost from the value of your home due to wear, age, and use.

The risk with actual cash value policies is that you won’t receive enough of a payout from your home insurance company to make needed repairs if there is major damage done to your home.

These policies may also not provide enough reimbursement if your home is a total loss since they only offer a payout for the amount you could receive if you sold the home. This is often far less than the cost it would take to replace the home and your possessions.

Replacement Cost Value Policies

Replacement cost value insurance policies provide an additional layer of protection that actual cash value policies do not. These policies provide coverage for the price to repair your home at the current costs of building supplies. They also pay the amount of money needed to replace your possessions at the current cost of the same item or something similar.

Where does recoverable depreciation come in?

If you have a replacement cost value policy, your home insurance company will typically pay you the actual cash value, minus your deductible, of the cost to replace or repair your belongings and property right away. This allows you to hire contractors to complete the work or find replacement items.

Once the work has been completed or you have already purchased new items to replace the damaged ones, you must submit the receipts to your insurance company. The insurance provider will then reimburse you for the difference between what you paid and the actual cash value. This amount is the recoverable depreciation.

Factors Impacting Recoverable Depreciation

There are a few factors that will impact if you receive the full recoverable depreciation value you think you are entitled to. These include the following:

  • How long it takes you to make repairs – The amount of time you have to complete repairs depends on where you live. Some states set a limit of 6 months, while others allow up to a year. If you don’t complete your repairs within the state-mandated time frame, your insurance company doesn’t have to pay you the replacement cost value.
  • The estimate of damages to your property – You may find that the insurance company’s adjuster estimates the cost of damage repair differently from a public adjuster you hire to provide an estimate. If this happens, you have a few options. You can contact your insurance company, your state’s insurance department, or a lawyer. However, the longer it takes to reach a settlement and begin fixing your property, the longer you will be without your home and payment from your insurance company.
  • Lack of ordinance and law coverage – This is a specific type of coverage in your homeowners insurance policy that protects you from changes in building codes in your area. If your home needs to be built or repaired, some local ordinances require that it be done in a manner that meets current building codes. If you don’t have ordinance and law coverage, you’ll be responsible for the additional cost to update your home. This often includes elements like windows, roofs, plumbing, and electrical wiring, all of which are quite expensive to upgrade.

What is non-recoverable depreciation?

Non-recoverable depreciation is any depreciation value that is considered to be ineligible for reimbursement by your homeowners insurance policy. If you have actual cash value coverage or other clauses in your policy that don’t account for recoverable depreciation, the loss of the value of your property and belongings due to nonrecoverable depreciation.

How do insurance companies calculate recoverable depreciation value?

Insurance companies consider several factors when calculating the depreciation value of your home and belongings. The three primary things they look at are:

  • How old the item is
  • If there is a newer version that has made the old one obsolete
  • The condition of the item

Based on these factors, insurance companies use industry-standard guidelines to determine how much your items have depreciated. There is usually a specific percentage applied to each item per year it’s been in use.

This gives the insurer the proper actual cash value to pay you. Then, when you purchase a replacement item or pay for repairs, the recoverable depreciated value is the difference between the actual cash value and what you paid.

How To Get the Maximum Value For Your Property and Belongings

The landscape of a home insurance policy can be tricky. The last thing you want to worry about when disaster strikes your home is haggling with the insurance company over the value of your property. You need to be your own advocate to get the best replacement value from your insurance company. Here are a few tips from United Policyholders:

  • Don’t be afraid to negotiate. If you don’t think the assessed value is fair, you can challenge the adjuster’s assessment
  • The condition of your belongings or property matter. Age doesn’t always tell the whole story. When you’re making a list of damaged property, be honest about the condition. If something was old but in excellent condition, don’t be afraid to say so.
  • Some items don’t depreciate in value. These include the insulation, light fixtures, masonry, and framing in your home. Smaller items such as antiques, jewelry, and art also don’t depreciate with time.
  • Ask for individual depreciated values, not a blanket assessment of the value of all of your items. This ensures that you are getting a more accurate value.

When is a recoverable depreciation clause a good idea?

You’re probably wondering how much adding a recoverable depreciation clause to your insurance policy will cost and if it’s worth it.

Unfortunately, there’s no easy way to assign an exact value to the difference in cost between two policies for your home without getting a quote from an insurance company. Too many factors go into determining the cost of a homeowners insurance policy to accurately estimate the difference in cost between the two policy types. Additionally, changes to those factors can cause a homeowners insurance rate increase.

However, you can make sure you are protecting your home by researching the best insurance policies and rates for your needs. Don’t be afraid to ask questions, and don’t forget to read the fine print before you commit to a new homeowners insurance policy.

Find the Best Rates on Homeowners Insurance

If your homeowners insurance needs an overhaul, then we can help. You can get free quotes from insurance agencies and compare the costs, coverages, and values all in one convenient place. Get started today with our free search tool to ensure that your home is protected.


  1. https://uphelp.org/claim-guidance-publications/depreciation-basics/

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