noun
depreciation
In plain English
The reduction in value applied to property because of age, wear, and obsolescence — used in ACV settlements.
On replacement-cost policies, depreciation is calculated and held back until the work is done; once you complete repairs, you get the recoverable depreciation. On ACV policies, depreciation comes off the top and you don't get it back.
What it covers
Used in calculating actual cash value: replacement cost minus depreciation = ACV.
What it does not cover
Depreciation is NOT applied uniformly. Carriers use different schedules (Xactimate, custom tables) for different categories of items — roofs, electronics, flooring depreciate at different rates.
Where it trips people up
Recoverable depreciation requires you to actually do the work. If you take the ACV check and pocket it, you forfeit the depreciation portion. Some homeowners learn this only after the work doesn't get done.
The technical version
The reduction in value of property due to physical wear, age, and obsolescence, used to calculate actual cash value or to derive recoverable depreciation under replacement-cost policies.