What is recoverable depreciation?

Recoverable depreciation refers to the amount an insurer will reimburse to a policyholder for depreciation that is deducted from the initial payment, but which can be recovered once the insured property has been repaired or replaced. This concept is crucial in property insurance claims, as it acknowledges that while the value of an item may decrease over time due to wear and tear, the policyholder has the right to reclaim that value after taking the necessary steps to restore the property to its pre-loss condition.

When the repairs on the property are completed, the insured can provide proof of those repairs to the insurer, thus allowing them to collect the depreciated amount that was initially withheld. This mechanism ensures that policyholders are not unfairly disadvantaged by the natural aging of their property and allows them to receive full compensation for their covered losses once they fulfill their obligation to repair. Thus, the correct answer accurately captures the essence of recoverable depreciation in the context of insurance claims.