How does travel insurance and depreciation work?

The truth behind travel insurance depreciation and how much money you'll get back if your items are stolen overseas.

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Jessica Prasida

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Key takeaways

  • Depreciation refers to the drop in value of your stuff over time.
  • Travel insurance won't pay out the original cost of most items. Rather, they'll apply depreciation and pay less.
  • You may be able to insure specific items for a particular amount, for a higher permium.

What exactly is travel insurance depreciation?

Depreciation is the reduction in value of an asset over time. This can be due to wear and tear and normal use, but is more often just a case of regular old obsolescence. Luggage, laptops, phones, cameras and other gadgets are the things most hard hit by depreciation that you're likely to claim for under a travel insurance policy.

If you make a travel insurance claim for a lost or broken item, you'll generally be paid out the depreciated cost, rather than the price you paid for it originally. This could be quite a lot less than you originally paid!

How is depreciation determined by the insurance company??

Insurers calculate depreciation on your luggage and personal items using similar international standards. Rates of depreciation typically depend on the following:

  • Type of item. Certain items like electronics will depreciate more quickly than items of clothing.
  • Age of the item. The older an item is, the more depreciation is applied to it.
  • Condition at the time of loss or theft. If the item is already worn, then a greater depreciation charge will be applied to it.
  • Usable life. How many years the item is expected to last e.g. a phone has a shorter life span than a luggage bag.

It's important to read the depreciation rules for your particular policy carefully before purchasing. While insurers follow accepted universal standards regarding an item’s type, age, condition and usable life, each insurer will weigh each factor slightly differently e.g. some providers will simply deduct 10% off the items value each year whilst others will have a more complicated process.

Usable life of items

While you may own an item for a number of years and it may operate without a hitch during that time, insurers are a little more conservative when evaluating an asset’s life. Typical life expectancy terms they apply include the following:

ItemsYears
Mobile phones, laptops and tablets3yrs
Cameras and video cameras7yrs
Sports equipment4yrs
Clothing3yrs
Jewellery10yrs

If an item is older than its usable life, an insurer will pay a flat rate usually around 25% of the purchase price. This is known as the residual value.

Case Study: Joan's laptop

Quite often this will differ according to many factors like the condition of your laptop as well as the how the insurer interprets depreciation. The following example details how an insurer might depreciate a laptop that is stolen.

Joanne's partially covered laptop

After a week-long business conference in London, Joanne flew down to Ibiza to party for the weekend before coming come to Australia. Unfortunately, her $1,000 laptop was stolen by a local, despite leaving it secure in her hotel. When Joanne made a claim, she received a total of $650.

Why didn’t Joanne get paid the full $1,000?

The benefit received by Joanne reflected a $250 depreciation of her laptop and a $100 excess charge.

How exactly is depreciation calculated

A common travel insurance practice is to calculate depreciation by:

  1. Assessing the usable life of the item
  2. Finding the difference between the original cost of an item and the residual value (the left over value once it reaches its usable life)
  3. Dividing this difference by usable life of the item to get the yearly depreciation rate
  4. Applying this rate to how long the item has been used
Joanne's laptop
  • Original cost of laptop = $1,000
  • Age of laptop = 1 year
  • Total life of the item according to the insurer = 3 years
Depreciation breakdown
  • Residual value set by the insurer = $250
  • Depreciation rate = $1,000 - $250 = $750 divided by 3 years = $250 per year
  • Depreciation of the Joanne's laptop over one year = 1000-$= $250
Benefit payout
  • Benefit after depreciation = $750
  • Total benefit after excess charge = $650

How much is depreciated over three years?

This is how travel insurance depreciation can look over time. From three years and onwards, the insurer will only pay out the residual value of the laptop.

How much is depreciated over three years

How much is depreciated over three years
Age of laptop (years)Before excess chargeAfter excess charge
0$1,000$900
1$750$650
2$500$400
3$250$150
4$250$150

How to avoid travel insurance depreciation

Some insurers let you avoid depreciation on your personal items by listing them as valuable items and paying an extra premium for them. The cost of this premium varies with each insurer and the maximum amount will vary with each insurer<.>Why paying an extra premium to insure a valuable item can go a long way

Extra cover for a valuable item is not that expensive when you consider the potential cost of depreciation your item receives without the cover.

Why paying an extra premium to insure a laptop is worth it

This graphs is for illustrative purposes only and is not indicative of an actual policies valuable items cover.

Why paying an extra premium to insure a laptop is worth it
Age of laptop (years)Without adding laptop as valuable itemWith laptop added as valuable item after premium
0$900$850
1$650$850
2$400$850
3$150$850
4$150$850
Source: Finder

Is it worth it after just one year?

In this example, the premium for the $1,000 laptop to be listed as a valuable item with a typical insurer is around $50. If the laptop had not been listed as a valuable item, depreciation would have reduced its value to $650 after excess. Paying $50 for an extra $200 worth of extra cover makes financial sense.

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Jessica Prasida brings a decade of experience in the travel industry, including over four years as a travel agent and branch manager at STA Travel. She holds a Bachelor of Business and a Master of Marketing from the University of Technology, Sydney, as well as a Tier 1 General Insurance qualification that complies with ASIC guidelines. An avid traveller herself, Jessica combines her professional expertise with a passion for ensuring safe and enjoyable journeys for all travellers. Jessica was a Travel Insurance Publisher at Finder from 2019 to 2024. See full bio

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