Recoverable Depreciation Defined in 2025 (Details You Should Know)

Recoverable depreciation refers to the difference between an item’s actual cash value (ACV) and its replacement cost (RCV), helping policyholders recover lost value.

This article explains how insurance can cover that gap, detailing the claims process and key factors like ACV and RCV. Explore our review of “Best Auto Insurance Companies.”

Understanding these terms can significantly impact your ability to receive full compensation and protect your assets in the event of a loss. Maximize your insurance benefits by mastering recoverable depreciation today. Find the best auto insurance company near you by entering your ZIP code into our free quote tool above.

Understanding Recoverable Depreciation

Almost all items depreciate over time. This includes household items, expensive electronics, vehicles, and nearly everything you can purchase. The current value with depreciation factored in is considered the actual cash value (ACV). The cost to replace the item with another is the replacement cost value (RCV). In most cases, the RCV will be higher than the ACV.

If you have an insurance policy that covers the RCV, then the gap between this and the ACV is considered recoverable depreciation. This is because the insurance company helps you recover the difference between an item’s ACV and RCV if it needs to be replaced.

Should the item need to be replaced due to damage or theft, there will be a difference between its current value and what it will cost to replace. When an insurance company covers this gap, it is considered recoverable depreciation. In terms of car insurance, this is called Gap insurance.

It’s important to understand what your insurance policy covers. Some policies only cover the ACV, while others will cover the RCV. When your insurance policy only covers the ACV, you are responsible for paying the difference for the replacement. This is considered non-recoverable depreciation. 

Comparing Recoverable Depreciation Rates Across Top Providers

Recoverable depreciation, a key factor in determining how much you’ll get reimbursed for damaged or lost items, varies significantly by insurance provider. Understanding the differences in monthly rates for both minimum and full coverage across popular insurers can help you make more informed decisions.

Recoverable Depreciation Monthly Rates by Provider

When analyzing monthly rates for recoverable depreciation coverage, each insurance provider offers distinct pricing for minimum and full coverage plans. For instance, USAA boasts one of the lowest rates, with $70 for minimum coverage and $110 for full coverage, making it a strong contender for cost-effective protection.

Meanwhile, Geico follows closely with competitive pricing of $72 and $120 for minimum and full coverage, respectively. At the other end, companies like Allstate and Farmers charge higher premiums, with Allstate’s rates starting at $89 for minimum and $150 for full coverage.

Read more: Cheap Full Coverage Auto Insurance

Insurance Claims With Recoverable Depreciation

If an insured item needs to be replaced due to damage or theft under an RCV insurance policy, you’ll need to file a claim. The insurance company will determine the ACV of the item, which may or may not require a visit from an insurance adjustor, and it will send you a check for the determined ACV minus your policy’s auto insurance deductible. 

The expectation is that you use this check to replace the item. However, if the check is not enough to cover the replacement, you may need to initially pay out-of-pocket to cover the difference due to the damaged item’s depreciated value. 

After you’ve secured a replacement of the same or similar quality, you will provide proof of the replacement cost to the insurance company. At this point, it will send a second check for the recoverable depreciation. This check is typically made out directly to you and is intended to reimburse for the out-of-pocket difference you paid for the replacement. 

ACV Calculation Explained

Every type of item depreciates differently. When it comes to how insurance companies determine the value of your car, there is no set formula, as a car depreciates differently than a large kitchen appliance, for example. Even among cars, factors like the make, model, and mileage have a significant impact on depreciation.

For a basic example, consider a situation where your home’s water heater has died. Let’s say the water heater costs $3000 brand new and has an expected useful lifespan of 10 years.

The insurance company may determine the rate of depreciation is $3000/10, which means it loses $300 of value per year. So if this water heater needs to be replaced after eight years, you’re looking at an ACV of $600. The brand and model of the water heater will, of course, also have an impact on this.

Key Takeaway: Insurance Covers Recoverable Depreciation of Lost Value

With rare exceptions, most items lose value over time. It counts as recoverable depreciation when your insurance policy covers the difference between the ACV and RCV. If your policy only covers the ACV rather than the RCV, then the loss in value is non-recoverable depreciation.

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When depreciation is non-recoverable, you are responsible for paying the difference between the insurance company’s check and the replacement cost. It’s important to check your policy to understand whether you have ACV or RCV coverage.

If you’re looking to lower your auto insurance premiums, enter your ZIP code into our free quote comparison tool below to compare your rates against the top insurers.