Replacement Cost vs. Actual Cash Value
We hope it never happens, but imagine for a moment that your roof is severely damaged by fire, tornado, storm, or a fallen tree. The damage is well beyond what can be repaired. You will need a new roof, and that will be expensive. So you call your home insurance company and make a claim. In an ideal world, the insurance company would swoop in and pay a roofing company to build you a new roof. Of course, that’s not always how it works. How much is covered, and how much isn’t, could depend on a single term in your insurance policy: replacement cost vs. actual cash value. Depending on how your policy was set up, you could be on the hook for thousands of dollars or next to nothing.
There is a major difference between wear and tear and roof damage. Generally, your home insurance policy won’t cover wear and tear. So if your roof has had a long life and it’s just time to replace it, you may not be in a position to file a claim. However, damage is when something other than wear and tear is the cause of the problem. Common examples of covered damage include weather (like hail, wind, or even tornadoes) and catastrophic occurrences (like fires or fallen trees).
It is worth noting that almost all home insurance policies exclude flood damage. You would need separate flood insurance to cover that. However, if there is a storm severe enough to cause flooding, chances are the damage to your roof is not form the floodwater. So while your insurance company may balk at paying for your ruined carpets, there is still a good chance your roof is covered.
Another important point to consider is that you don’t want to make too many claims on your homeowners insurance. It may seem unfair, but if you make too many claims, your premiums could go up. In the worst case, you could even be dropped when it comes time to renew your policy. Getting a new policy at that point will cost you a pretty penny, and the coverage will be very limited. So make sure that you save your claims for big-ticket items. If you want to learn more about exactly when to make a claim, you can read our blog post here.
How is Damage Calculated
Once you make a claim, it is up to the insurance company to determine how much the damage is worth and how much they will pay you for that damage. The person who will be making that determination is called an adjuster. An insurance adjuster will visit your home and inspect the damage. Using a series of criteria, and often a computer program, the adjuster will calculate the value of the damage. The calculated value of the damage isn’t necessarily what will be covered. But it is the first step in determining how much you will get.
You may have guessed by now that this is one of the most crucial steps in settling your claim. How much the insurance company thinks your damage is worth will affect every other part of the process. That’s why Eagle Watch Roofing will come to your home and meet your adjuster at the time of their inspection. We’ll work with your adjuster to make sure that you get a fair valuation of the damage to your roof. Most homeowners just don’t know enough about their roofs to have much input into the process. But with a professional roofer on your side, your chances of getting an accurate valuation are much better. In fact, our goal is to make sure that the valuation of the damage matches what we charge to fix the damage. That way, you carry as little additional cost as possible.
Actual Cash Value
By default, most home insurance policies cover the actual cash value (ACV) of your property, including your roof. This is where things get sticky. If your policy covers ACV, it is very unlikely that the insurance company settlement will cover all of your costs. That’s because ACV takes into account depreciation. You can think of ACV as how much you would get for your property if you sold it today in its current condition (before the damage, of course).
To calculate ACV, the adjuster will first determine what it would cost to repair or replace the damaged property. Next, they will calculate the depreciation, which is the amount of value your property has lost over time. Once the adjuster has calculated the value of the damage and the depreciation, they can calculate the ACV.
Actual cash value is calculated as the value of your property after subtracting for depreciation. If you wanted to write it out as a formula, it would look like this:
ACV = Cost to Repair or Replace – Depreciation
So if your roof is warrantied for 30 years, but it’s 20 years old, in an ideal world we would say that it has depreciated by 66%. In that case, the ACV would be 34% of the replacement or repair cost. Of course, if your 20-year-old roof needs to be replaced, you will have to pay a roofer the full cost of a new roof. But since insurance only pays the ACV, you will have to cough up 66% of the cost yourself. However, once you’ve made the payment, you have a brand new roof, which is worth more than the roof you had.
It can cost a little more upfront, but a replacement cost add-on to your homeowners insurance can be a huge help if you ever need to make a large claim. That’s because replacement cost is just what it sounds like, the actual cost of replacing your damaged property. The only difference between replacement cost (RC) and actual cash value (ACV) is that RC doesn’t take into account depreciation. Both the RC and the ACV start with an adjuster determining the cost of repairs or replacement. But with RC, that’s where the calculation ends. The insurance company pays the full cost of repair or replacement, regardless of how old your roof is.
In the case of your 20-year-old roof, having an RC add-on means your insurance will pay for a brand new roof of the same type and material as the damaged roof. The only money you will spend out of pocket is your deductible. Obviously, this is a huge improvement on ACV, which is the standard for most homeowners insurance. Your premium will most likely be higher, but if you need to make a large claim, it could be a lifesaver.
Whether or not you purchase an RC add-on is up to you. It depends on how much risk you want to assume. It also depends on how much you have in your savings in case of an emergency. If you think you could absorb the partial cost of a new roof, go with the cheaper ACV. But if you want the peace of mind that comes with knowing you won’t get stuck with a huge bill after a disaster, pay a little more for the RC add-on.
Eagle Watch Roofing is On Your Side
Whether your policy covers ACV or RC, getting an estimate from your insurance company that matches the actual cost of repair or replacement is crucial. That’s why Eagle Watch Roofing will come to your home to meet the adjuster. We will accompany the adjuster on their inspection. And we’ll work with them to ensure that their estimate matches the real cost of repairs. Then, we will work with your insurance company to make sure you don’t pay a penny more than you have to. If you are thinking about making an insurance claim for your roof, contact Eagle Watch Roofing first. We’ll walk you through the insurance process, so you get the coverage you paid for and nothing less.