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Depreciation

What Does Depreciation Mean?

Depreciation is a loss of value over time. In the context of insurance, many types of insured items depreciate as time goes on, and a policy may reimburse the policyholder based on the initial value of the item or its current market value, which takes depreciation into account.

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Insuranceopedia Explains Depreciation

For example, cars start depreciating as soon as they are driven off the lot after a sale. The reason why cars and other items lose value over time is because wear and tear reduces the quality of the item, and oftentimes, newer models are produced. If a policy only covers the actual cash value, then the insurer will take into account depreciation when considering the reimbursement amount.

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