Many people don’t have a good understanding of their homeowners’ insurance because of the wording used in their policies. Insurance companies in states that frequently experience large hail, tornadoes, and hurricanes are changing to a type of coverage that is much less favorable to people called actual cash value or ACV. Some insurance companies change existing policies to ACV coverage when people live in states with extreme weather. One current trend is insurance companies that require checks on roofs that are more than 15 to 20 years old. If the company identifies a problem, homeowners are forced to fix it before they can get a replacement cost insurance policy. Otherwise, they will be forced to take an ACV policy. In some states, it is almost impossible to insure a 20-year-old roof with a replacement cost policy. At RGB Construction, we think it is important for people to understand their insurance policies so that they know when they should choose to replace their roofs instead of trying to insure their old roofs.
ACV vs. RC policies
Insurance is meant to cover losses after you suffer them. People who have insurance want to be responsible for their deductibles while the additional costs are borne by their insurance companies. This type of coverage is a replacement cost policy. It is frequently paid out with half up front and the remainder when the work is finished.
ACV policies account for depreciation when they determine how much people should receive for their losses. For example, a roof that was predicted to last for 30 years will be presumed to have no value at that point in time. If the roof is destroyed 15 years after it is installed, the ACV will be half of what was originally paid for the roof’s installation. The ACV is equal to the replacement cost minus the depreciation.
Problems with getting insurance on a roof that is 20 years old
Many insurers will insist on inspecting a roof that is 20 years old or older before they will agree to provide coverage. Insurance companies want to protect their profit margins and will insist on looking at roof warranties and receipts as well as an inspection report. People whose incomes are lower may choose ACV policies to get lower premiums. Other people may be able to obtain RC policies, but they will have to pay higher premiums if their roofs are older.
Other hard-to-insure home types
Insurers start at 20 years because asphalt shingles have an average life expectancy of 40 years. However, at around 15 years, the average asphalt roof will begin to show the effects of the elements. Asphalt shingles begin to turn brittle by 12 years. Anybody who has a home with an older roof that does not pass inspection should consider a full replacement of the roof even if only small repairs are needed. A full replacement of your roof can offer the following benefits:
- A new roof makes it easier for you to get an RC policy
- A new roof can lower the premiums that you have to pay
- A new roof adds beauty to your home
- A new roof provides a good return on investment if you put your home on the market
ACV insurance claim example
If you have an ACV policy, the depreciation of your roof will be subtracted from the cost to replace it. This makes insuring an older roof that has issues a good move for insurance companies. The companies can charge higher premiums while knowing that they will have to next to nothing if your roof is damaged and needs to be replaced.
For example, imagine that you purchase a home that is 20 years old and still has its original roof. You apply for homeowner’s insurance, and the insurance company requests an inspection of the roof because of its age. The inspection reveals that there is some old hail damage. The insurance company then asks for you to pay to repair the hail damage at a cost of around $1,500 or to replace the roof before you can obtain an RC policy. Next, the insurance agency will suggest ACV as an option.
You might be tempted to go for the ACV policy to avoid spending $1,500 on repairs while also paying lower premiums. A few years later, a hail storm destroys your roof. You call your insurance company for an inspection of the damage and to make a claim. Your insurance agent calls you after the inspection and tells you that it will cost $14,000 to replace your roof. Since you have an ACV policy, depreciation of your now 25-year old roof reduces its value by 62.5%. The agent then tells you that the company will not pay for all of the replacement costs, and you will be stuck with a majority of the costs.
Choosing to replace your roof to start with is a much better scenario. When you get a new roof, it is a worthwhile investment that can protect your home and improve its value. Contact RGB Construction Services today to schedule an appointment and to obtain a quote.