Your homeowners policy probably says "replacement cost coverage." The first check you receive after a major loss will probably be for something less — sometimes significantly less. The gap between those two numbers is depreciation, and understanding how it works determines whether you recover the full amount your policy provides.
What replacement cost means
Replacement cost value (RCV) is what it costs to replace a damaged item with a new item of like kind and quality at today's prices. If a fire destroys a 10-year-old roof, replacement cost coverage means the insurer pays for a new roof — not a 10-year-old roof.
This is the standard in most modern homeowners policies and is generally what you're paying premiums for. The key phrase is "like kind and quality" — the replacement doesn't have to be identical, but it should be functionally equivalent.
What actual cash value means
Actual cash value (ACV) is replacement cost minus depreciation. Depreciation is the insurer's reduction for age, wear, and useful life consumed. A 10-year-old roof with a 20-year expected life might be depreciated by 50%. If a new roof costs $20,000, the ACV payment would be around $10,000.
ACV policies are less common now but do exist — and even RCV policies pay ACV on the initial check. Understanding this distinction is not just academic. It's the difference between having enough money to actually replace what you lost.
The two-check system: how RCV policies actually pay
If you have a replacement cost policy, here's how payments typically work after a major loss:
The insurer pays ACV first — that's the initial check. The withheld portion (the difference between ACV and RCV) is called "recoverable depreciation." You receive the recoverable depreciation only after you've actually replaced or repaired the item and submitted proof of the work done.
This sequence is intentional. Insurers don't want to pay full replacement cost upfront and then have policyholders pocket the money without making the repairs. The recoverable depreciation system ensures the money goes toward actual replacement.
Where policyholders lose money
The most common mistake: not going back to claim the recoverable depreciation. Many policyholders receive the ACV check, make repairs (possibly cheaper repairs than the estimate), and never file for the withheld depreciation. The insurer keeps it.
There's usually a deadline — often 180 days to 2 years after the loss, depending on your policy — to submit proof of replacement and claim the recoverable depreciation. Missing that deadline means forfeiting it.
The second mistake: not understanding what's being depreciated. Insurers depreciate both structural components and personal property. Roofing, flooring, cabinets, appliances — all subject to depreciation on the initial payout. Each category has its own depreciation schedule, and those schedules aren't always accurate.
The third mistake: accepting the insurer's depreciation calculation without review. Age-based depreciation tables are a starting point, not a law. Items that have been well-maintained, recently renovated, or are of higher quality than standard can be argued to carry less depreciation. A public adjuster or attorney can challenge depreciation calculations that don't reflect the actual condition of the property.
Depreciation disputes in Georgia
Georgia insurers, like insurers everywhere, have wide latitude in how they calculate depreciation — but that latitude has limits. Courts in Georgia have found that depreciation must be reasonable and must reflect actual reduction in value, not just age. Applying a blanket age-based depreciation to items regardless of their actual condition can be challenged.
If your insurer's depreciation calculations seem inconsistent with the actual condition of your property — especially for recently replaced items or well-maintained systems — push back with documentation: receipts, photos, contractor statements about the condition prior to the loss.
For complex claims where the ACV/RCV gap is significant, a public adjuster can review the depreciation schedule line by line and negotiate items that have been over-depreciated.
What to do now, before a loss
Check your declarations page. Confirm you have replacement cost coverage, not ACV. If your policy is ACV-only, the premium difference to upgrade to RCV is usually modest — and the difference in payout after a major loss can be enormous.
Document your property now. Photos of roofing, flooring, appliances, and cabinets with timestamps create evidence of condition that can support lower depreciation calculations later.
Ask your agent specifically: what's the depreciation policy on my coverage? How long do I have to claim recoverable depreciation after a loss? What documentation do I need? Getting those answers now means you won't be learning the rules in the middle of a claim.
Related: Recoverable Depreciation: What It Is and How to Actually Collect It — the step-by-step process for recovering withheld depreciation after repairs.