Recoverable depreciation
Claims · Cloudbreak team · Updated October 29, 2026 · 5 sources
Definition
Recoverable depreciation is the difference between a damaged property's replacement cost and its actual cash value. Replacement cost policies commonly pay the actual cash value first and the recoverable depreciation after the repair or replacement is finished.
How it works
Depreciation is the value property loses over time from age, wear and tear or obsolescence. Replacement cost minus depreciation is the actual cash value (ACV).
On a replacement cost policy the depreciation is only held back, not lost. The insurer pays the ACV so work can start, and the owner collects the held-back amount by showing the repair or replacement was done, usually with invoices or a signed contract. On an ACV policy the same depreciation is deducted for good, so there is nothing to recover.
Policies set deadlines for finishing the work and for claiming the held-back amount. Many, like ISO's CP 00 10, cap the final payment at what was actually spent. Costs to meet building codes are usually a separate coverage, not part of recoverable depreciation.1
On the standard commercial property form
ISO's Building and Personal Property Coverage Form, CP 00 10, values covered property at actual cash value by default. When the Declarations show the Replacement Cost optional coverage, replacement cost "without deduction for depreciation" replaces actual cash value in the Valuation condition.1
The same form will not pay on a replacement cost basis until the property is actually repaired or replaced, and only if that work is done as soon as reasonably possible. The insured may first take an actual cash value settlement and still claim the replacement cost difference by notifying the insurer within 180 days after the loss.1
The replacement cost payment is capped at the least of three amounts: the limit of insurance, the cost to replace with property of comparable material and quality used for the same purpose, or the amount actually spent on the repair or replacement. Extra cost to meet an ordinance or building law is not part of that cost.1
Example
The Texas Windstorm Insurance Association (TWIA) publishes this simplified example: $200,000 of coverage, a 2% deductible ($4,000), $20,000 of covered roof damage, and 25% depreciation, from a 5-year-old roof with a 20-year expected life.2
| Replacement cost policy | Actual cash value policy | |
|---|---|---|
| Cost to repair or replace | $20,000 | $20,000 |
| Depreciation | $5,000 withheld | $5,000 deducted |
| Deductible | $4,000 | $4,000 |
| First payment | $11,000 | $11,000 |
| Second payment after proof of repairs | $5,000 recoverable depreciation | None |
| Total paid | $16,000 | $11,000 |
- First payment$11,000
- Deductible (2%), paid by the owner$4,000
- Recoverable depreciation, paid after proof of repairs$5,000
- Total$20,000
In both cases the first payment is $11,000. Only the replacement cost policy pays the $5,000 of depreciation, and only after proof of repairs. TWIA notes that even the $16,000 total may be less than the money needed to repair or replace the property.2
Where you'll see it
- Declarations page: shows whether property is valued at replacement cost or ACV. The CP 00 10 Replacement Cost optional coverage applies only if shown there.1
- Claim estimate: the adjuster's estimate lists replacement cost, depreciation and actual cash value, line by line, and the first payment equals the ACV less the deductible.
- Final payment request: the owner's proof of completed repairs, such as invoices, sent to claim the withheld depreciation.
State rules
Texas, deductible proof: Texas Insurance Code Section 707.004 lets an insurer with replacement cost coverage refuse to pay withheld recoverable depreciation or a replacement cost holdback until it receives reasonable proof that the policyholder paid the deductible. Reasonable proof includes a canceled check, money order receipt, credit card statement, or a copy of an executed installment plan or other financing contract.3
Texas, TWIA: the Texas Windstorm Insurance Association pays replacement cost claims in at least two parts, the ACV and then the recoverable depreciation. Replacement cost coverage comes from endorsement TWIA-164 on commercial policies and TWIA-802 on dwelling policies. The "Coins %" on the Declarations page shows the insurance-to-value percentage, and 80% or more means replacement cost coverage.4,2
Texas, TWIA deadlines: claim acceptance letters on policies with replacement cost coverage must state the deadlines for completing repairs, submitting documentation and demanding appraisal of the replacement cost amount. Under Section 2210.5741, the claimant submits documentation of the cost and completion of repairs within 545 days after receiving the claim acceptance notice. TWIA then has 30 days to state in writing the replacement cost amount it will pay, and must pay within 10 days of that notice. A claimant who has not already demanded appraisal under Section 2210.574 may demand appraisal of that amount within 30 days of the notice.5
Questions
- Is recoverable depreciation paid automatically?
- No. The owner has to finish the repair or replacement and claim it. Under ISO form CP 00 10, the insurer will not pay on a replacement cost basis until the damaged property is actually repaired or replaced. In Texas, TWIA pays recoverable depreciation as a supplemental payment after proof of repairs.1,2
- How long do you have to claim recoverable depreciation?
- The policy sets the deadline. CP 00 10 requires repair or replacement as soon as reasonably possible, and notice within 180 days after the loss if the insured first settles at actual cash value. In Texas, TWIA allows 545 days after the claim acceptance notice to submit repair documentation.1,5
- How is depreciation calculated on a roof claim?
- Insurers usually base it on the roof's condition at the loss, the cost of a new roof and how long that roof type normally lasts. TWIA's example uses 25% for a 5-year-old roof with a 20-year expected life.2
- What happens to depreciation on an actual cash value policy?
- It is deducted from the replacement cost for good, and what remains is the actual cash value payment. In TWIA's example, the actual cash value policy pays $11,000 in total on a $20,000 roof loss, against $16,000 under replacement cost coverage.2
Cloudbreak
Cloudbreak keeps a dated record of every roof section, elevation and rooftop unit before a storm, in photos, drone video and notes, with original files and timestamps intact.
Sources
Written by the Cloudbreak team. Numbers, dates and rules cite the published sources below.
- 1. Insurance Services Office (copy hosted by Independent Insurance Agents of Texas): Building and Personal Property Coverage Form, CP 00 10 10 12
- 2. Texas Windstorm Insurance Association: Factors that Affect the Claim Payment Amount
- 3. Texas Legislature: Texas Insurance Code Chapter 707, Payment of Insurance Deductible
- 4. Texas Windstorm Insurance Association: Rights and Responsibilities
- 5. Texas Legislature: Texas Insurance Code Section 2210.5741, Replacement Cost Coverage Claim Processing