Will Your Roof Be Paid for After a Storm?

The roof of your house protects your family and belongings from the rain, wind, hail, and more, so, it has to stand up to quite a lot of punishment! So is your homeowner policy going to replace it? 

Replacement Cost vs. ACV (Actual Cash Value) 
So when you took at your declarations page for your homeowners policy and see that you have $250,000 in coverage for your home, you assume that will be enough to replace the roof after the next hail storm.  

But when it comes to the actual coverage that will be provided when a claim is filed, it is important to understand that all policies do not cover your property the same. Below are two types of coverage to be aware of and to look for on your declarations.  

• Actual Cash Value: Actual Cash Value coverage is a way of covering your roof that limits the amount that you will be paid in the event of a claim. Basically, the insurance company will account for the depreciation on the current roof, and they will deduct this from the payout amount for the claim. The older the roof, the more they depreciate it, and the less they will give you. Here is an example that will show you exactly what we mean:

• Let's say a hail storm comes through Joe’s neighborhood and causes lots of damage to his roof. He has a contractor come out to inspect, and the verdict is that he is going to need a new roof. The estimate shows that a new shingle roof is going to be $15,000. Joe calls his agent to file a claim. An adjuster comes out, inspects the damage, and accepts the claim. A week later Joe gets a check for $5,500 to replace his roof. Mike calls the claims department to find out why it's not the full $15,000. They tell him that since his roof is 10 years old, it has depreciated to a valuation of $7,000. Mike has a deductible of $1,500. So Joe is responsible for the other $9,000 needed to replace the roof.  

• Replacement Cost: Replacement cost is the best way to insure your roof and other stuff. If your policy covers your roof at Replacement Cost, you will receive the amount needed to pay for labor and materials to replace the roof with a new one of like kind and quality of the current roof. Let’s look at the same example from before, only now Joe has Replacement Cost on his roof, instead of ACV. 

• Let's say that same hail storm comes through Joe’s neighborhood and causes lots of damage to his roof. He has a contractor come out to inspect, and the verdict is that he is going to need a new roof. The estimate shows that a new shingle roof is going to be $15,000. Joe calls his agent to file a claim. An adjuster comes out, inspects the damage, and accepts the claim. A week later Joe gets a check for $13,500 to replace his roof. Joe has a deductible of $1,500 so he is responsible for the remaining $1,500 needed to replace the roof.  

So, “Why would anyone ever want to have their roof covered at ACV or Actual Cash Value?”. Good question, and the short answer is that it is sometimes difficult to find a policy that will offer Replacement Cost. Most insurance companies will insure a brand-new home (and a brand-new roof) at Replacement Cost. But if you have an older home some companies have rules against insuring old homes without ACV on the roof.

On the other hand, a home that has a 25-year-old shingle roof with that many years of wear and tear, we can assume that this home has a good chance of a roof claim. So, a lot of companies may not offer Replacement Cost on the roof of this home, or they may charge a much higher premium in order to have Replacement Cost coverage. In this case, you may agree to ACV coverage just because it's cheaper. 

 Roof Payment Schedule 

There is a third option for roof coverage that you may see on your policy. This is called a Roof Payment Schedule. A Payment Schedule will function just like Replacement Cost if the roof is brand new, but it decreases the amount of coverage on the roof for every year the roof gets older. For example, an insurance company may something similar to this schedule:

• Roof 1 Years Old: 100% Replacement Cost 

• Roof 5 Years Old: 85% Replacement Cost 

• Roof 10 Years Old: 70% Replacement Cost 

• Roof 15 Years Old: 55% Replacement Cost 

• Roof 25 Years Old: 25% Replacement Cost 

This can be a real shock at the time of loss if you don't know that this endorsement is on your policy, let's look at our example from before:

That hail storm comes through Joe’s neighborhood and causes lots of damage to his roof. He has a contractor come out to inspect, and the verdict is that he is going to need a new roof. The estimate shows that a new shingle roof is going to be $15,000. Joe calls his agent to file a claim. An adjuster comes out, inspects the damage, and accepts the claim. A week later Joe gets a check for $5,750 to replace his roof. Mike calls the claims department to find out why it's not the full $15,000. They tell him that since his roof is 15 years old, so based on the Roof Payment Schedule in his contract they paid 55% of the damage ($8,250) less Joe's deductible. Joe has a 1% deductible (1% of the amount on his house, let's say he has $250,000 on the dwelling) equaling $2,500. So Joe is responsible for the other $9,250 needed to replace the roof.  

This 3rd situation is a sneaky one and something you have to really watch for deductibles can be 1/2% or 1% or even 2% and can be limited to roof claims or can be an overall deductible. When you combine that with an ACV roof or  a Roof Payment Schedule settlement option it can really bit into what you might need to get back to where you were before the claim.

Will homeowner’s insurance replace my roof when it gets old? 

No, your roof will not be covered to be replaced if it just gets old. There has to be some sort of occurrence, or peril that causes the roof to have substantial damage.  

Insurance, by design, was never meant to protect from damage done by aging or normal wear and tear. Wear and tear is one of the excluded perils that no insurance company will cover for. Insurance is here to be an option when something unexpected happens that would require you to pay large repair or rebuild costs. If you own a home, you can expect to replace your roof every 20-30 years depending on you live and what type roof you have. Insurance will only cover against certain perils so if there isn't a sudden unforeseeable peril that damages the roof, your insurance company will not pay. 

In most cases, homeowner’s insurance will not pay out for cosmetic damage to your roof. If your metal roof has small dents in it from a hailstorm, but it still keeps all wind and precipitation out, most insurance companies will deny claims to replace it. 

Read you policy document or take it to an agent and have someone look for these issues in the policy.  Make sure you are not surprised at the time of loss and have to pay a lot more of the bill than you were planning.

jasonedwards@shelterinsurance.com