The decrease in the value of property over time due to age, wear and tear, or obsolescence. In insurance, depreciation determines the difference between replacement cost and actual cash value when settling a claim.
Related Terms
Actual Cash Value
The current market value of property at the time of a loss, calculated as replacement cost minus depreciation. If your five-year-old roof is damaged, an actual cash value policy pays what a five-year-old roof is worth today — not the cost of a brand-new roof.
Claim
A formal request made by a policyholder to an insurance company for payment or reimbursement for a covered loss or policy event. Filing a claim triggers the insurer to investigate the loss, assess damages, and determine what amount is payable under the policy.
Replacement Cost
The amount it would cost to replace damaged or destroyed property with new items of similar kind and quality, without deducting for depreciation. Replacement cost coverage typically results in higher claim payments than actual cash value coverage.