The depreciation of an asset is the loss in value of a used asset over its lifespan. To calculate the depreciation, an insurance company needs to know how long the item will last. The duration of use is usually based on how long it takes for the item to reach its end of life.The cost of an item is split into two parts: the purchase price and the value at which it’s sold. The purchase price is subtracted from the value at which it’s sold, giving us a figure we can work out as our depreciation.