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In many cases, your covered asset has depreciated by 50% or more in value since you purchased it. That means your insurance company might offer a settlement that's twice as much as what you would receive without recoverable depreciation.
Generally, depreciation is calculated by evaluating an item's Replacement Cost Value (REV) and its life expectancy. REV represents the current cost of repairing the item or replacing it with a similar one, while life expectancy is the item's average expected lifespan.
Depreciation is the method of allocating the cost of an asset over the course of its useful lifetime. When you sign an insurance policy, your insurance company is likely agreeing to cover the replacement cost of the covered item like your house.
In home insurance, recoverable depreciation refers to the dollar amount difference between your property's actual cash value and its replacement value. After you've repaired or replaced the damaged property, your insurer will write you a check for the recoverable depreciation amount.
For double-declining depreciation, though, your formula is (2 x straight-line depreciation rate) x Book value of the asset at the beginning of the year. The straight line depreciation rate is the percentage of the asset's cost minus salvage value that you are paying. Here that is $20,000 out of $200,000, or 10%.
Year 1 = 6/21 = 28.6% times the cost (or cost less salvage) Year 2 = 5/21 = 23.8% Year 3 = 4/21 = 19% Year 4 = 3/21 = 14.3% Year 5 = 2/21 = 9.5% Year 6 = 1/21 = 4.8%
Actual cash value is used in valuing insured property in the property and casualty insurance industry. Actual cash value is computed by subtracting depreciation from replacement cost while depreciation is figured by establishing an expected lifetime of an item and determining what percentage of that life remains.
The ACV, or actual cash value of your car is the amount your car insurance provider will pay you after it's stolen or totaled in an accident. Your car's ACV is its pre-collision value as determined by your car insurance company, minus whatever deductible you are required to pay for your comp or collision coverage.

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