The question isn’t if…it’s when…when will the wind howl…when will it hail next? We live in Missouri. It’s going to happen eventually.
The same can be said about your roof. It’s going to wear out. Your roof isn’t made to last forever. It’s not if, it’s when.
It’s thoughts like this that make you scratch your head and think, “is my roof covered by insurance?”
You could remove your shingles and siding, bringing them inside when inclement weather is in the forecast. That’s one way to prevent a loss.
Insurance companies have been tightening their guidelines on older homes. In this post I want to touch on the trends in how insurance companies are insuring roofs.
Replacement Cost vs Actual Cash Value
Before we can jump into the changes and trends in homeowners insurance we need to understand the difference between Replacement Cost vs Actual Cash Value.
5 years ago you replaced your roof. The roof is supposed to have a 20 year life expectancy. Today it hails…the cost to replace your roof (again) is $20,000. If you have Replacement Cost coverage the settlement would look like this:
$20,000 to replace your roof – $1,500 Deductible = $18,500…this is what you receive to replace your roof.
Actual Cash Value
Using the same example, here is what an Actual Cash Value (ACV) settlement would look like:
$20,000 to replace your roof – $5,000 (25% Depreciation) – $1,500 Deductible = $13,500…this is what you would receive to replace your roof.
We are using 25% Depreciation because your roof in this example has a life expectancy of 20 years.
According to Dictionary.com, Depreciation is defined as, “decrease in value due to wear and tear, decay, decline in price, etc.“
Depreciation will be factored into the loss at the time of settlement if you have ACV coverage on your roof.
Some people may remember when a $500 Deductible on your homeowners policy was commonplace. Today insurance companies have increased the minimum Deductible to at least $1,000. More and more we are seeing that number inch up to a minimum of $1,500.
I’ve also seen companies require your Deductible be a percentage of what you insure your home for. For instance, if you insure your home for $200,000 and have a 1% Deductible, you would be responsible for the first $2,000 in the event of a loss.
Split Deductibles are also becoming an option. Maybe you have a $1,000 All Perils Deductible / $2,000 Wind/Hail Deductible. Yes, you read that right…two Deductibles. All Perils means that is the Deductible for any loss with the exception of Wind and Hail. Wind and Hail will be the higher of the two Deductibles.
Depreciation After a Specific Age
Here is another trend happening in homeowners insurance. Coverage for your roof converting from Replacement Cost to Actual Cash Value.
Let’s say you recently replaced your roof. I imagine your insurance policy will be providing Replacement Cost coverage on your roof.
Once your roof reaches 15 years old (or 20 years with some companies) your policy would no longer provide Replacement Cost therefore changing your loss settlement to Actual Cash Value.
Not every insurance company has adopted this practice, but something to be aware of.
Cosmetic Damage Exclusion
For those with metal roofs, some insurance companies may have a Cosmetic Damage Exclusion in the policy. Should your roof get dings from hail there is no coverage to repair or replace your roof.
Now if the hail causes a hole in your roof, that’s another story.
Why Does the Insurance Company Retain Depreciation?
During the claim process, once you and the adjuster have reached an agreement on what it will take to repair or replace your roof. The insurance company may give you a check for less than what you agreed on. Before you get mad, here’s why…The insurance company will retain a portion of the money until the work is completed. Insurance companies learned over the years customers would spend the entire check everywhere except their roof.
The other reason is contractors will generally complete a job for the full amount of the estimate. That’s fine except you agreed to a Deductible when you started your insurance policy.
Once work is completed, send the adjuster proof the work is finished (i.e. a paid invoice) and you will receive the remaining money (minus your deductible of course).
Your Contractor’s Estimate is Higher
What happens if your contractor’s estimate comes in higher than the insurance adjuster?
Maybe adjuster missed some damage during his estimate causing your contractor’s figures to be higher. Provide the adjuster with documentation reflecting the scope of the project. Or more specifically the area that may have been missed. Pictures, measurements, etc. from your contractor will provide the necessary documentation to get the issue resolved.
For starters, insurance was never intended for you to walk away with more than you started. If you want to make money start a business, hold a garage sale, moonlight.
Second, insurance companies are made of people. Just like you and I. They get up in the morning, have their coffee, and put their pants on one leg at a time. Their objective isn’t to swindle you.
The best time to determine if and how your roof is covered is now.
Communicate with your insurance agent, the claims adjuster, and whomever else you work with. It will make a world of difference.
Music Credit: Bensound.com