When you purchase travel insurance that covers lost, stolen, or damaged property, it’s incredibly important to understand that insurance companies reimburse you based on the current value of your belongings, not the original price you paid. This process is called depreciation — and it’s completely standard in the insurance world.
What is depreciation?
Depreciation is the natural decline in value of an item over time due to wear and tear, usage, aging, and even changes in technology.
Think about it like this:
When you buy a brand-new laptop today for $1,000, it won't still be worth $1,000 two years later.
Even if it’s in excellent condition, newer models and regular usage mean it might now only be worth $400 or $500.
That reduction in value is depreciation.
Depreciation recognizes that older items are less valuable than brand-new ones.
How do insurance companies calculate depreciation?
Insurance companies generally use a standard formula to calculate the current, depreciated value of your belongings. Here's the usual approach:
Determine the original purchase price
How much you paid for the item when it was new.
Estimate the useful life
Each item type (like electronics, clothing, or luggage) has an expected "useful life." For example:
Laptops: 3-5 years
Smartphones: 2-3 years
Clothing: 2-3 years
Suitcases: 5 years
Calculate annual depreciation
Divide 100% of the value by the number of years in its useful life.
Example: If a laptop has a 5-year lifespan, it loses about 20% of its value each year.
Factor in the item’s age
Multiply the depreciation rate by the number of years you've owned it.
Subtract depreciation from the original price
That final amount is what it's called the Actual Cash Value (ACV), and it's the amount that your reimbursement will be based on.
Quick Example
You bought a suitcase for €300 two years ago.
The insurer considers a suitcase to have a 5-year lifespan.
Depreciation rate = 20% per year.
After two years: 20% × 2 years = 40% total depreciation.
Value after depreciation: €300 - (€300 × 0.40) = €180.
👉 Your reimbursement would be around €180, not €300.
Why Does Depreciation Matter?
Because it ensures fairness.
Insurance is designed to put you back in the position you were in before the loss, not to make a profit or upgrade your belongings. Covering the full new price of old items would unfairly benefit some people, and insurance works by being fair for everyone in the pool.