How Do Insurance Companies Calculate Depreciation?
Key takeaways
- •Depreciation equals replacement cost times age divided by expected useful life.
- •On a replacement cost policy the withheld depreciation is recoverable after documented repairs.
- •Labor and code-required items are frequently depreciated when they should not be.
The short version
Insurers estimate the age and expected useful life of each damaged item, then reduce its replacement cost proportionally. A roof with a 25-year expected life that is 10 years old may be depreciated roughly 40%. On a replacement cost policy, that withheld amount is recoverable once you complete and document the repairs.
How the math usually works
Replacement cost x (age / expected useful life) = depreciation
- Replacement cost of roof: $20,000
- Expected useful life: 25 years
- Age: 10 years
- Depreciation: $8,000
- Actual cash value payment: $12,000, minus the deductible
- Recoverable holdback: $8,000 after documented completion
Recoverable versus non-recoverable
- Replacement cost value (RCV) policy: depreciation is held back and released after repair
- Actual cash value (ACV) policy: depreciation is permanent and never released
- Roof-specific ACV endorsements: increasingly common in New York, they convert roof claims to ACV only - check your declarations
What is commonly over-depreciated
- Labor. Many jurisdictions and policy forms treat labor as non-depreciable; carriers still depreciate it
- Undamaged materials being replaced only for matching
- Recently replaced components, where the adjuster used the home age instead of the component age
- Code-required items, which are generally paid at cost through ordinance or law coverage
How to challenge depreciation
- Ask for the depreciation schedule showing age, life, and percentage for each line
- Provide receipts or permits proving a component was newer than assumed
- Object in writing to depreciation applied to labor
- Confirm whether your policy or endorsement makes the roof ACV only
Always request the full estimate with the depreciation column visible. If you only get the summary, you cannot see what was reduced or why.
Recovering the holdback
Submit final invoices, photos of completed work, and permit sign-offs. The recoverable depreciation is owed after documented completion, subject to your policy time limit for completing repairs.
Long Island Public Adjusters audits depreciation on Nassau and Suffolk County claims and pursues the recoverable holdback. Call 516-410-0164 for a free claim review.
For official guidance on property insurance and claim rights, visit the New York State Department of Financial Services.
Need Help With Your Claim?
Get a free consultation with our licensed public adjusters.