Depreciation

The reduction in value of property based on age and wear, which insurance companies use to calculate claim payouts.

How It Works

Insurance companies assume property loses value over time. For roofing, depreciation is typically 5-10% per year. A 15-year-old roof is considered 75% depreciated, even if it still works fine.

This depreciation calculation is used with ACV (Actual Cash Value) coverage. It's not applied with RCV (Replacement Cost Value) coverage.

Why This Hurts Homeowners

A roof might still be functional after 12-15 years, but insurance considers it mostly used up. When damage happens, they pay based on remaining life, not actual replacement cost.

Example: Your 12-year-old roof costs $12,000 to replace. Insurance calculates 60% depreciation (5% per year × 12 years). They pay you based on $4,800 remaining value, not $12,000 replacement cost. You pay the $7,200 difference.

Avoid Depreciation Penalties

Ask your insurance agent for RCV coverage, which doesn't apply depreciation. Yes, your premium increases, but you won't get hit with depreciation deductions when you file a claim.

Related terms: Actual Cash Value, Replacement Cost Value

Review depreciation in your policy: 877-367-1885