Recoverable Depreciation

Recoverable depreciation is the amount of value that an item—like a laptop—loses over time. Depending on your insurance policy, you can recoup this amount when you file a claim for damage or theft.

What is recoverable depreciation?

Over time, your stuff can depreciate, aka go down in value. If depreciation is ‘recoverable’ in the context of a renters or homeowners insurance policy, it means that you may be entitled to receive a reimbursement for the depreciation amount on your stuff if something happens to it, once your insurance claim is approved, of course. 

Keep in mind that depreciation is only recoverable on policies with replacement cost coverage, not on actual cash value policies.

Actual cash value vs replacement cost

There are two payment models insurance companies typically use to reimburse you after they approve a claim: actual cash value or replacement cost. (FYI, Lemonade renters and homeowners insurance policies have replacement cost coverage.)  

Actual cash value (or ACV) is the “Ebay price” of a given item. It’s how much someone might pay to buy your used property, given its natural wear and tear over time. If you bought a brand new Macbook Air in 2018, you probably spent around $1,200–but that’s not how much you would spend to buy that used laptop on Ebay in 2021. 

Let’s say your 3-year-old Macbook was stolen, here is how your insurer might calculate its actual cash value:

Laptops have around a five-year lifespan (whereas something like a TV might have something closer to a 10-year lifespan), so if it was damaged three years after you bought it, that means that it has depreciated by $720 (60% of $1,200).

Last up, the calculation: 

$1,200 (replacement cost) – $720 (depreciation) = $480 (actual cash value)

Replacement cost, on the other hand, is the “Amazon price” of an item. It’s how much someone would pay to buy the new version of the same (or similar, if it’s discontinued) make and model of your item. For example, If you bought a brand new 2018 Macbook Air today, in 2021, it would cost you around $800. That’s the replacement cost.

How does recoverable depreciation actually work?

Let’s say that 2018 Macbook Air is stolen, and you file a claim. Your insurance company has replacement cost coverage, and if your claim is approved, you could eventually get a roughly $800 payout from your insurer (minus your deductible, of course).

You can think about replacement cost coverage like this: 

$480 (ACV) + $320 (recoverable depreciation) = $800 (replacement cost).

In other words, the “recoverable depreciation” is the difference between the Actual Cash Value and Replacement Cost.

But what if your Macbook is stolen and your insurance has actual cash value coverage? 

Well, once your claim is approved, you could expect to receive a claim payment for $480—the depreciated value of your laptop—minus any deductible you might have.

How can you claim recoverable depreciation?

If your renters or homeowners insurance policy has replacement cost coverage, you still might not see the full amount right away. 

In the case of the stolen Macbook, once your claim is approved, your insurance company will send you $480 (the ACV) up front, minus any deductible. You can then go out and buy your new 2018 Macbook Air and send the insurance company your $800 invoice. Only then will you receive the recoverable depreciation amount you qualify for—around $320, in this scenario. 

Keep in mind, this is only if you have a homeowners or renters policy that reimburses for replacement cost; if it only reimburses for actual cash value, you won’t receive the recoverable depreciation amount back. 

In any case: Before your invoice is approved by your insurer, you’ll have to pay the recoverable depreciation amount out-of-pocket when you replace or repair your property—no matter what kind of policy you have.