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🏚️ '''Non-recoverable depreciation''' is the portion of an asset's loss in value due to age, wear, and deterioration that an [[Definition:Insurance policy | insurance policy]] will not reimburse, even after the [[Definition:Insured | insured]] completes repairs or replacement. It arises most commonly under [[Definition:Actual cash value (ACV) | actual cash value (ACV)]] policies and certain [[Definition:Replacement cost | replacement cost]] policies that cap recoverable [[Definition:Depreciation | depreciation]], leaving the policyholder to absorb the difference between the item's depreciated value and its full replacement cost. In [[Definition:Property insurance | property insurance]], this concept directly affects how much money a [[Definition:Claimant | claimant]] ultimately receives after a [[Definition:Covered loss | covered loss]].

🔎 When an [[Definition:Insurance carrier | insurer]] adjusts a [[Definition:Property claim | property claim]], the [[Definition:Claims adjuster | adjuster]] typically calculates the [[Definition:Replacement cost value (RCV) | replacement cost value]] of the damaged or destroyed item and then subtracts depreciation to arrive at the [[Definition:Actual cash value (ACV) | ACV]] payout. Under a standard replacement cost policy, the insured can later recover the withheld depreciation—known as [[Definition:Recoverable depreciation | recoverable depreciation]]—by proving the repair or replacement was completed. However, some policies explicitly designate certain categories of depreciation as non-recoverable, meaning that portion is permanently excluded from the [[Definition:Claims settlement | settlement]] regardless of what the insured spends. Roofing claims illustrate this well: a 15-year-old roof damaged by a storm may carry substantial non-recoverable depreciation, leaving the homeowner with a significant gap between the insurance payout and the actual cost of a new roof.

💡 Understanding whether depreciation is recoverable or not can make or break a policyholder's financial recovery after a loss. [[Definition:Insurance agent | Agents]] and [[Definition:Insurance broker | brokers]] who fail to explain this distinction risk [[Definition:Errors and omissions (E&O) | errors-and-omissions]] exposure when clients discover unexpected shortfalls at claim time. From a product-design perspective, the treatment of depreciation is a meaningful lever for [[Definition:Underwriting | underwriters]] and [[Definition:Program administrator | program administrators]]—policies with broader non-recoverable depreciation provisions carry lower [[Definition:Loss cost | loss costs]] but may face resistance from consumers and [[Definition:Insurance regulator | regulators]] concerned about coverage adequacy.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Actual cash value (ACV)]]
* [[Definition:Replacement cost]]
* [[Definition:Recoverable depreciation]]
* [[Definition:Depreciation]]
* [[Definition:Property insurance]]
* [[Definition:Claims settlement]]
{{Div col end}}

Definition:Non-recoverable depreciation - Revision history

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