In property insurance, depreciation is the value reduction applied before settlement in an actual cash value settlement method.
It is used to prevent over-indemnification when a damaged item is replaced by a newer equivalent.
Claims role
The depreciation amount depends on age, condition, and functional life. Adjusters may apply different depreciation schedules for electronics versus building materials.
Example
When a 10-year-old laptop is destroyed in a covered event, a replacement-cost policy may pay the new-laptop price while an ACV policy first subtracts depreciation for age and usage.