Rhode Island Insurance Adjuster Exam 2026 – Complete Study Guide

Depreciation, in the context of insured property, refers to the reduction in value of an asset over time due to various factors such as wear and tear, age, and obsolescence. This concept is crucial in insurance because it impacts how much a policyholder can claim when a loss occurs. For example, when an insured property is damaged or destroyed, the insurer will consider the property's depreciated value rather than the original purchase price or replacement cost. This reflects the current value of the asset, taking into account the effects of time and use.

Understanding depreciation helps property owners and adjusters in evaluating claims accurately and ensures that the insured value reflects the actual condition of the property at the time of loss. In contrast, other options do not accurately define depreciation: some address replacement costs or market value, which are related but distinct concepts.