Depreciation

Defined by the National Association of Insurance Commissioners as “a decrease in the value of property due to wear, age, or other cause.” Depreciation is used to determine how and how much the factors of time, wear, and condition affect the value of property and is used to calculate the ACV (Actual Cash Value) of the property in question by subtracting the depreciation from the Replacement Cost Value (RCV). You could think of depreciation as the difference between the ‘new’ price of an item (the RCV) and the ‘used’ price of the item (the ACV).  

It is important to note that depreciation is subjective and policyholders have the legal right to challenge excessive depreciation.

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