Claims · Insurance Term
Depreciation
Definition
Depreciation is the loss in value of property over time from age, wear and obsolescence. In a claim, it is the amount subtracted from replacement cost to arrive at actual cash value. Depending on your policy, depreciation may be held back until repairs are done, or not paid at all.
In Plain English
Adjusters estimate depreciation by looking at an item's age, condition and expected life. A 15-year-old roof with a 20-year expected life might be depreciated 75%. Subtract that from the replacement cost and you get the actual cash value.
If your policy pays replacement cost, many insurers first pay actual cash value and hold back the depreciation. You then collect that withheld amount, called recoverable depreciation, after repairs or replacement are finished, usually within a set time. If your policy is written at actual cash value, depreciation is generally not paid back.
Some roof endorsements, such as a roof surfacing payment schedule, set depreciation by a fixed table based on roof age. Disputes over depreciation are common, so keep records of when roofs, HVAC units and other systems were installed or replaced.
Not sure how your policy handles this? Have us review it, or get a quote.
Example
Hypothetical and simplified: A hailstorm damages a roof that costs $200,000 to replace. The roof is 12 years into an expected 20-year life, so the adjuster applies 60% depreciation, or $120,000. Under a replacement cost policy, the insurer may first pay $80,000 minus the deductible, then pay the withheld $120,000 after the roof is replaced.
Why It Matters for Texas Property Owners
Roofs take the brunt of Texas hail. Roof schedules and actual cash value roof endorsements show up often on Texas commercial policies, so depreciation can decide how much of a hail claim you actually receive. Knowing your roof's age and your policy's roof terms before storm season helps you plan.
What to Watch For
- Check whether your policy values roofs at replacement cost, actual cash value or by a schedule.
- Keep invoices and dates for roof, HVAC and other major system replacements.
- Ask how long you have after a loss to finish repairs and claim withheld depreciation.
- Ask the adjuster to explain how the depreciation percentage was calculated.
Common Questions
Will I get the depreciation back?
Under a replacement cost policy, usually yes, once you finish repairs or replacement within the policy's time limit. Under an actual cash value policy or an actual cash value roof endorsement, the depreciation generally isn't paid.
Can depreciation be applied to labor?
It depends on the policy wording and how the adjuster applies it. Practices vary, so ask the adjuster to show how labor and materials were treated in the estimate.
Last updated October 14, 2026 · Primesure editorial team · How We Write