Roof Insurance: ACV vs. Replacement Cost
Winston-Salem, NC 9/11/2019
Will your homeowners's insurance policy fully cover the cost of damage to your roof? Many states have been hit hard by wind and hail damage these past few years; as a result, you may now have a gaping hole in your Homeowner's policy related to roof insurance coverage. Many policyholders have indicated that they are not aware of recent changes made by multiple large HO carriers that significantly impact the way that claims are settled for roof damage.
A string of unusually costly years for residential roof damage claims in Oklahoma, Kentucky, Tennessee, North Carolina and elsewhere has prompted some insurers to dial back the roof coverage portion of their home insurance policies, especially on older roofs. One popular trend is to offer "actual cash value," or ACV, coverage on your roof instead of full "replacement cost value," or RCV. What's the difference? With ACV, your insurer pays to repair or replace your roof, less your deductible and depreciation for the age and type of roof. With RCV, however, the insurer pays all costs to make your roof whole again without factoring in depreciation, once you've met your deductible.
Allstate led this belt-tightening trend two years ago, though the company prefers to say that its House & Home policy offers a "scheduled roof depreciation option" for wind and hail damage on older roofs and is not the same as actual cash value coverage. Other insurers in hard-hit states, including Farm Bureau Insurance of Tennessee and American Family Insurance, also have moved away from traditional replacement cost value roof coverage. Michael Barry, spokesman for the Insurance Information Institute, an industry trade group, calls it a logical response, from the insurer's perspective. "If you look at a company like Allstate, they have all these homeowners who have gotten three $20,000 roof replacements in 3-5 years. That's not a sustainable business model when they're charging you $1,100 a year for home insurance," he says. Unfortunately, the trend leaves homeowners who have never heard of ACV or RCV at a loss as to which coverage to choose (if given the choice) - and could stick some who failed to spot a change on their policy renewal notice with a steep roof repair bill down the road.
For example, say your $20,000 roof is 10 years old and your home insurance policy has a $1,000 deductible. If a storm destroys it and you have actual cash value roof coverage that depreciates the roof's value by $1,000 per year, your out-of-pocket share of the cost for a new roof would be $11,000 (comprised of the $1,000 deductible plus $10,000 for the depreciation). With replacement cost coverage, you'd be out only the $1,000 deductible. "The dollar difference between replacement cost value and actual cash value can be huge," Barry admits.
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