This is the amount that is deducted from the price to be paid for replacing an object that has been lost or damaged. The normal life-expectancy of the item is considered. Also the condition of the object from "poor to excellent" will affect the payout. These factors affect the resale value.

If an item is practically worn out, then you would sell it for much less then the replacement cost. This is a high depreciation.

If the item is in very good condition, then you could probably still sell it as a used item. This item would have a lower depreciation.

An example of depreciation is how claims are settled after a hail storm. The neighbour's house whose roof is quite new, will get more money then the house with the 25-year old shingles even though they may have equal damages. Call your agent or broker for more information about your particular concern.