Homeowners, can you answer this question? Does your property insurance cover your roof, and is it an ACV or RCV policy?
Majority of homeowners have property insurance, but very few homeowners actually understand the details of what their insurance coverage provides. In fact, most homeowners we speak to don’t even know the difference between an ACV and RCV policy, and time and time again we have seen this lack of understanding cost homeowners thousands of dollars when it came time to replace their roof. If you are ready to renew your home insurance policy or are considering purchasing a new policy, we have some tips for you in regards to roof coverage that will help ensure you pay less money out of pocket when replacing your roof.
RCV vs AVC
So, what is RCV and ACV as it relates to your property insurance and why is it important? Replacement Cost Value (RCV), is a policy that factors in the total cost it takes to replace your roof, and pays this total to the homeowner, minus your deductible and any exclusions in your policy. With an RCV policy, as long as you have a contractor with an eye for detail, and experience working insurance claims, you can have your roof replaced in full, with minimal out of pocket expenses. After all, that’s the reason we pay our premiums every month!
Actual Cash Value (ACV) on the other hand, is a policy that also factors in the total cost it takes to replace your roof, but deducts depreciation as well as your deductible and any exclusions from the claim total. Most asphalt shingle roofs have a lifespan of 25-30 years, with some accessories being far shorter than that, so a few years can reduce the total insurance claim by a significant margin. For example, if your roof has a 30- year lifespan, and is currently 15 years old, insurance will deduct around 50% of the cost to replace your roof due to depreciation. In actuality, this leaves the homeowner responsible for paying more than 50% of the total claim after factoring in deductibles and exclusions.
When you receive your claim for an RCV policy, you will also see depreciation being deducted from the total. However, depreciation on an RCV claim is recoverable, meaning as long as the work being paid for is completed, you can recover all of that money. With an ACV policy, depreciation is non-recoverable whether you complete the work or not. While you will most likely pay a bit more in premiums for an RCV policy, if you live in an area prone to coverable damage, it will almost certainly save you a significant amount of money in the long run.
Ordinance or Law Coverage
An approved claim will typically pay to restore the home to its original condition, prior to the coverable damage occurring. But what if you are unable to restore the home to its original condition due to changing local ordinances? This is where the importance of Ordinance or Law coverage, aka Code Upgrades comes into play.
Municipalities make changes to their ordinances every few years, and sometimes these changes can have big impacts on homeowners. Most municipalities have adopted some version of the International Roofing Code, along with local amendments, which include specific requirements that must be met in order to pass inspection. However, when your roof was last replaced, the current ordinances were not likely yet in place. Without Ordinance or Law Coverage, you as the homeowner would be responsible for paying for these necessary code upgrades.
Code upgrades can come in the form of ice barrier, impact resistant shingles, flashing requirements, etc. all of which can account for thousands of dollars added to your claim. As long as your policy includes Ordinance or Law Coverage, your insurance company will be responsible for covering these costs, whether they previously existed on the home or not.
Every insurance policy includes a deductible the homeowner must pay before the remaining claim total is covered, so knowing how much you are responsible for is crucial before filing a claim. While many property insurance deductibles are flat rates, typically $1,000-$2,500, some deductibles are a percentage of the total claim. In fact, in certain storm prone areas, specific types of damage such as wind or hurricane damage may require a percentage deductible, while other forms of damage result in a flat rate deductible.
Both flat rate deductibles and percentage-based deductibles can get pricey if you’re not cautious. We have seen flat rate deductibles that leave homeowners paying over half the cost to replace their roof, even with an RCV policy, which is not something you want taking you by surprise after filing a claim.
Do you have more than one roofed structure on your property? If so, is that structure covered by insurance, and is the coverage adequate? If you look at your property insurance policy you will likely see separate coverage for your main dwelling, and detached/other structures. If detached structures are covered under your policy, the main dwelling will often have a much higher limit than the detached structures, which are often a percentage of your main dwelling coverage limits.
Detached structures are not just limited to roofed structures such as a garage, shed, or carport. Structures such as fences, pools, and even sidewalks and driveways can fall under the detached structure category. If you have multiple or large detached structures that are susceptible to damage, it’s important to ensure your policy includes coverage for these items, and that the coverage limit is high enough to cover any foreseeable damage.
While this may not be something you specifically need to add to your policy, it’s critical to at least be aware of. Typically, with your property insurance policy, there is a specific time frame in which damage needs to be reported and repaired. If you fail to submit a claim or repair the damage within that specified window, you could be responsible for covering the costs of repairs.
The further away from the time of damage you wait to file a claim, the more likely it is your insurance company will specify any damage as a result of previous damage or wear and tear, neither of which are covered under a typical property insurance policy.
Additionally, we have seen homeowners file a claim, and spend the money rather than make repairs. As well as this being a case of insurance fraud, the damage doesn’t go away. In fact, it will likely get worse, and when the repairs are finally unavoidable, the total cost is often much higher than the initial claim. In this scenario, since the initial damage was not repaired, the homeowner would be on the hook for the entire cost of repairs.
If circumstances prevent you from making timely repairs, it is still better to file the claim, as you can file for an extension (in writing!) that will provide you additional time to hire a contractor to repair the damage.
Replacing a roofing system doesn’t come cheap, and you as the homeowner shouldn’t be the one to bear the brunt of the cost if you are paying monthly premiums toward a property insurance policy. Everyone’s circumstances are different, and one policy doesn’t fit all. To ensure you are making the best decision for your personal circumstances, you will have to calculate the difference between the increased premiums and the total savings from a more comprehensive policy. However, it’s important that you have the opportunity to do so based on all the factors, rather than selecting a policy based solely on the price of the premiums, which is not always a good indication of the quality of the policy.
If you have additional questions about selecting a property insurance policy that will provide adequate coverage for your home and roof, or if you have already filed a claim and need help with repairs, get in touch with us here!