What Does Depreciation Insurance Mean?
Depreciation insurance, or zero depreciation coverage, is a provision in a property insurance policy that covers the actual value of the property prior to the loss of value it experiences over time. It overlooks the diminished value of the property due to depreciation of its market cost, damage, or wear and tear.
Insuranceopedia Explains Depreciation Insurance
Most properties lose their value over time. A used car is not as valuable as a new car. Real estate prices might plunge, making a property less valuable.
If your policy includes depreciation coverage, there is no loss of value or deduction because of these factors. The policy will pay out an amount equal to what the insured has paid to purchase the property.
The downside to this coverage is that, because the payouts and the risk to the insurance company are higher, so are the premiums.