Can you imagine needing to replace your roof—and then finding out your insurance will only cover $500 of it?
This isn’t just a hypothetical. It actually happened to a Village Roofing client a few years ago. And if you haven’t looked at your insurance in a while, you could be in danger of it happening to you.
How do you avoid that happening?
Replacement Cost Value (RCV) vs. Actual Cash Value (ACV)
Storm season is a busy time for roofers and insurance companies alike. As we jump into the thick of it, it’s time to revisit that insurance policy. There are two terms you need to know that are important to how your roof is covered: replacement cost value or RCV; and, actual cash value, or ACV.
Replacement cost value means just that: it’s the value it would take for you to replace your roof right now with the current prices for material and labor.
Actual cash value is a little more complicated. Most roofs are designed to last for twenty-five to thirty years. Over the course of that time, as with most things, the materials wear down and depreciate. Think of your roof the same way that you would a new car—as soon as you drive off the lot, it loses value. And it continues to lose value over its life, almost irrespective of what you do.
That’s what happened to this client. Their policy covered ACV, not RCV, (replacement cost value). Their 20-year-old roof would have been worth about $10,000 in replacement value, but with depreciation, the ACV check would only have been about $500, after their deductible. That’s not even worth taking the hit on your insurance credit to file a claim.
Before storm season, check your coverage to see whether you have replacement cost value (RCV) or ACV. Even if you have replacement cost value coverage and not ACV, sometimes the coverage will convert to ACV after your roof is ten years old. Replacement cost coverage is more expensive than ACV. The premium is higher. But often it’s worth it.
Another thing to be aware of is your deductible. Most people are aware that premiums and deductibles have an inverse relationship to each other—the higher your premium, the lower your deductible, and vice versa.
Your deductible is usually based on a percentage if you live in Oklahoma and a lot of other states. If your house is covered for $200,000 and you have a 1% deductible, you’ll pay $2,000 out of pocket before insurance covers anything. If a 2% deductible, you’ll pay $4,000. Make sure you check your deductible before storm season so you don’t get blindsided if things have changed.
And one side note on deductibles: if a contractor offers to “waive the deductible for you”, RUN. That’s insurance fraud and a felony, and even if it wasn’t, it means they’re going to have to cut costs elsewhere. Your roof’ is probably not going to be as good, and when you look for the company to make repairs you might just be left holding the bag, because that usually means they’re not a reputable company.
Check your insurance
Often when insurance policies get renewed, it’s automatic and people don’t pay attention to the declarations page. Even when it’s not time to renew, you can change your policy’s deductible or coverage…you don’t have to wait for an anniversary date. Be informed about your policy and make sure things haven’t changed from year to year. Read in detail.
Think about when you’re buying your policy—what do I want to do if something happens? Am I being penny wise and pound foolish? You can call and switch up your premium and deductible if you want to be cautious heading into storm season, with the understanding that your premium would be prorated.
Most people don’t talk to their insurance agent that often—only when getting a policy and making a claim. If you do have a good working relationship with your agent, they’ll lay out the pros and cons of each policy option. Make sure you’re making an intelligent and informed decision about what to do. Educate yourself. We don’t want other people to suffer financial hardship because they didn’t know.
Understand your insurance policy’s options, check them before storm season, and make sure you’re ready no matter what nature throws at you.