What does non-recoverable depreciation indicate?

Non-recoverable depreciation specifically refers to the reduction in value of an asset due to factors such as age, wear and tear, and overall condition. This type of depreciation is crucial for understanding how much an asset has depreciated and helps determine the payout in the event of a loss. In insurance claims, non-recoverable depreciation signifies the amount of value that cannot be recouped or replaced by the insurer, essentially showing that even if the asset is replaced, there will still be a value decrement that is not compensated by the insurance.

This option highlights the specific characteristics of non-recoverable depreciation, distinguishing it from other concepts such as total replacement cost or cash value after a loss. It reinforces the idea that the value of the asset has diminished over time, and this decline is what is accounted for when determining the insurance payout, making it a key concept in public adjuster practice.