When you file a home insurance claim, you might expect one big check to show up. But that’s not usually how it works. Your insurer may hold back part of the payout, which is something called recoverable depreciation. Knowing what that means and how to get that money released can help ensure you receive the full amount you’re entitled to after a loss.
Learn more: Homeowners insurance: What it covers and how much you’ll pay
Recoverable depreciation is the portion of your claim payout your insurance company hangs onto until you replace or repair the property that was damaged.
When something you own gets damaged or destroyed by a covered event, like a wildfire or severe storm, like a tornado, your insurance company figures out two amounts:
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Actual cash value (ACV): How much the item or property is worth today, accounting for depreciation
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Replacement cost (RCV): How much would it cost to buy or build a brand-new one
The difference between these two values is referred to as recoverable depreciation.
So, when you insure your home and personal property with RCV, you’ll typically receive at least two payments after filing a claim:
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First payment: This is for what your property is worth in its used condition (or the ACV)
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Second payment: Once you submit proof to your insurance company that all repairs and replacements are complete, your insurer will send you the remaining amount (or the recoverable depreciation).
Learn more: Actual cash value vs. replacement cost: Understanding the difference in home insurance
Now that you know what recoverable depreciation means, here’s how the process usually works when you file a claim. Most insurers break the payment into steps, and understanding the order can help you know what to expect after experiencing a loss.
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Start your claim after a covered loss: Your insurer will review the damage to make sure it’s covered under your policy. If the damage is covered, they will send an adjuster out to estimate the damage and determine a reasonable settlement amount for your claim.
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Receive your first payment: This initial payout is usually the ACV part of your settlement, which reflects what your damaged property is worth after accounting for wear, tear, and age. You can use this money to get started on repairs or buy materials.
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Fix the damaged property: This is when you hire contractors, purchase new items, or rebuild what was damaged.
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Submit proof to your insurance company: Once repairs are done or items are purchased, you can turn in your receipts. This might include invoices, photos, or contractor documents that show your insurer the work was completed and the items are brand new.
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Get your next payment: Once your insurer confirms that the repairs are finished, they’ll send you the recoverable depreciation they were holding back. In some cases, they may need extra inspections or paperwork from your contractor, so you could receive more than two payments before your claim is fully settled.
Learn more: How to get paid after a homeowners insurance claim
Here’s an example to give you an idea of what recoverable depreciation might look like when you submit a claim.
Let’s say you bought a new desktop computer for $1,600. Desktops can have a life expectancy of about eight years, depending on how much you use and maintain them. If yours is six years old when it is damaged by a fire, your insurer would typically consider two years of life remaining.
Based on the age and expected lifespan, the insurance company decides your computer has lost about 75% of its value over time. That means its ACV is now around $400, which is the remaining 25% of its value after depreciation.
Learn more: What does home insurance not cover?
If your policy includes RCV, the insurer will first pay you the ACV (minus your deductible). Then, they’ll send you the remaining amount once you’re able to prove you purchased a new computer of a similar make and model.
Here’s what this may look like:
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Original replacement cost: $1,600
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ACV (after depreciation): $400
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Recoverable depreciation: $1,200
After everything is wrapped up, your insurance payout ends up covering the full $1,600 replacement cost (minus your deductible).
Learn more: How much homeowners insurance do you need?
Nonrecoverable depreciation is the part of an item’s value that has decreased over time and is not paid back by your insurance. This applies to both your personal belongings and parts of your home.
With an ACV policy, you’ll only receive money for what the item is worth today, not for the cost of replacing it. That is why it’s important to review your policy and determine whether it uses ACV or RCV.
It’s also important to know that insurers typically have rules about when you can collect recoverable depreciation. For example, certain home features, like older roofs, may still be paid at ACV even under an RCV policy. That’s why you’ll want to get familiar with your insurance company’s guidelines, so you know what to expect when filing a homeowners insurance claim.
Just because your policy includes RCV doesn’t mean the recoverable depreciation will come automatically. There are a few things you need to keep in mind to make sure you get the rest of your payout.
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Look over your coverage: Before you need to file a claim, review your policy to make sure it includes RCV. If you only have an ACV policy, ask your insurance agent about your options and whether it makes sense to increase your coverage to RCV.
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Save all receipts and estimates: If you file a claim, keep records of everything you repair or replace. This means saving receipts, estimates, invoices, and taking photos of the damage and repairs. Without this documentation, your insurer may not give you the recoverable depreciation portion of your claim.
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Don’t miss the deadline: Most insurance companies give you a set amount of time to complete repairs, usually somewhere between six months and one year from the date of the claim. If you miss the deadline, you may not be able to collect the recoverable depreciation amount.
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Speak up if things change: If you run into delays, changes to your repair plan, or material costs that are higher than expected, reach out to your adjuster as soon as you can. They may be able to approve extra funds or give you more time to finish the work.
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Send proof when repairs are done: Once your home is repaired and you have replaced your damaged items, send all documentation to your insurer right away. The sooner they can review and verify the work, the sooner you’ll receive your recoverable depreciation.
Learn more: 7 things I learned after my house fire, according to an insurance expert
Recoverable depreciation works a little differently for every claim. The amount you receive, or whether you even receive it at all, usually depends on a mix of factors related to the property itself and the rules in your insurance policy. Here are a few things that can impact your payout.
Insurance policies have limits on what they’ll pay for a loss, so you can only receive recoverable depreciation up to your policy limits. Items like jewelry and heirlooms may also have their own smaller limits.
Since the cost to rebuild can rise as labor and material prices go up, it’s a good idea to review your policy each year to make sure your coverage amounts are still adequate. Some policies include inflation guards that automatically adjust these values for you.
Expert tip: If you’re unsure whether your home and belongings are fully covered, it’s always a good idea to check with your insurance agent.
Learn more: How much homeowners insurance do you need?
Age and type of property
How old something is plays a big role in how much it has depreciated. Generally speaking, the older an item or home is, the more value it typically loses, which means a lower ACV and a higher depreciation amount. Because of this, some insurers also place age limits on what items qualify for full RCV.
For example, an insurer may not offer RCV on a roof that’s over 15 years old. In that situation, ACV may be your only option, meaning you wouldn’t receive recoverable depreciation at all.
Learn more: Planning a home renovation? Be sure to let your insurer know.
Recoverable depreciation only applies to losses caused by unexpected events covered in your policy. Damage from things like floods or earthquakes is usually excluded unless you have separate coverage. Simply put, if the loss isn’t covered, you won’t be able to recover the depreciation.
Learn more: How much does flood insurance cost in every state?
No, only RCV policies offer recoverable depreciation. If your home insurance policy pays based on ACV, you won’t get the depreciated amount back when you file a claim. ACV policies only reimburse you for what your property is worth in its used condition, which is usually less than what it costs to replace it.
If you want coverage that pays to repair or replace your property so it is like new again, talk to your insurance agent about an RCV policy.
Learn more: How much is homeowners insurance? A guide to lowering costs.
Usually, the answer is no. One of the main reasons insurance companies hold back recoverable depreciation is to make sure they’re only paying for actual repairs or replacements. Because of that, you typically can’t receive the recoverable depreciation portion of your claim unless you repair or replace the damaged property.
That said, if you choose not to make the repairs, your insurer will usually just pay the ACV and keep the depreciated amount.
Learn more: How to shop for homeowners insurance in 5 steps
Yes, it usually applies to roofs as long as your policy includes RCV. If that’s the case, and your roof is damaged by something covered in your policy (such as hail or wind damage), your insurer will typically first pay the roof’s ACV. Then, after the repairs or replacement are completed and you show proof, they’ll release the recoverable depreciation amount (up to policy limits).
On the other hand, if your policy only covers ACV, the depreciation on your roof is nonrecoverable, and you won’t get that amount back. However, some policies have specific rules that apply just to roofs. So even if you have RCV, your insurer may apply age limits, cosmetic damage exclusions, or other restrictions that affect how depreciation is handled.
Tim Manni and Jamie Young edited this article.
