How Depreciation Is Calculated

depreciation is a reduction in value applied to damaged items based on their age and condition. Insurance policies typically apply depreciation when the policyholder opts for acv coverage instead of rcv coverage. Depreciation reduces the claim payout by a percentage tied to the age of the item.

• Materials and labor are often depreciated differently. Some policies depreciate materials at a faster rate (e.g., 10% annually) while depreciating labor at a slower rate (e.g., 5% annually).
• Cap on total depreciation. Policies typically cap total depreciation at 50% for materials and 25% for labor, meaning older items don't depreciate to zero.
• Different depreciation schedules exist. Some policies use straight-line depreciation (same % each year), others use accelerated or tiered depreciation.

• Applying depreciation above policy limits. Adjuster depreciates at 30% annually when policy limits depreciation to 10% annually.
• Depreciat labor when policy excludes it. Labor costs should not be depreciated the same way materials are.
• Depreciation beyond the cap. Adjuster allows depreciation to continue past the 50% or 75% cap defined in the policy.
• Depreciation new construction or recent replacement. Items recently installed should have minimal or no depreciation.

• Find your policy's depreciation schedule. What is the annual percentage?
• What is the maximum depreciation cap for materials and labor?
• For each damaged item, determine when it was originally installed.
• Calculate depreciation using the policy formula and compare to the adjuster's depreciation.
• Check if depreciation was applied per your coverage choice (acv vs rcv).