Depreciation is the process of assessing the gradual decrease in value of insured assets over time, commonly applied to properties, vehicles, or other items. Through methods like straight-line depreciation, the wear off of these ítems is accounted for.

Insurance companies utilize depreciation to determine coverage and compensation amounts in case of loss, ensuring fair payment based on current value, considering wear and tear, age, and other factors. This accounting practice enables accurate expense allocation and appropriate coverage throughout the expected useful life of the assets.

It is important to note that when the policy is under the actual cash value valuation method, depreciation is taken into account. However, if it is under replacement cost, it is not considered.