Filing an insurance claim for a hail damaged roof is new to many homeowners. Understanding the process and decoding all the insurance terms and acronyms can take a decoder ring. As insurance claim experts, we can help.
Two Types of Homeowners Insurance Policies
When selecting a homeowners insurance policy, there are two types of policies – Replacement Cost Value (RCV) and Actual Cash Value (ACV). Your roof replacement insurance estimate will include terms many policyholders have not seen before. We’re here to break these terms down for you.
Our customers often ask for help to explain the meaning of these property insurance terms related to their claims process. Let’s discuss each in a bit of detail and then do some math. You may want to research your homeowners policy to ensure you have the right coverage, ideally for replacement value on any claim. Metro City Roofing recommends you speak directly with your insurance agent for questions about your specific policy.
What Is Replacement Cost Value?
Essentially the Replacement Cost Value (RCV) is the amount your insurance company will pay to replace any property damage and personal property from storm damage like a windstorm or hailstorm. For a hail claim, liability coverage may include your roof, siding, windows, contents, and more. Whatever the cost is now, that is the RCV.
Your insurance coverage will likely pay you a portion of this up-front to get started and hold back a portion of the total amount (the Recoverable Depreciation) until you complete the scope of work (i.e., replace your roof). Once the work is confirmed completed, the insurance company will release the recoverable depreciation.
As you prepare to complete the work scope, you may find that replacement for certain items such as siding, skylights, windows, etc. is more expensive than the insurance company has listed. Have no fear. Insurance companies (and contractors) typically use industry-standard estimating software. The software doesn’t always get it right. If your quote or estimate is higher than the amount listed in your insurance estimate, submit this to the insurance company as a supplement. Most of the time, the insurance company will accept this and update the insurance estimate. You may need more than one quote, so be prepared. Most roofing companies will offer to supplement your insurance claim on your behalf, which is nice as they are experienced and understand the process of working with insurance companies, which can relieve any stress by the homeowner.
Certain property types will not qualify for an RCV policy, or you may need to ask your insurer to include this type of coverage. Examples we frequently hear of are rental properties, trailers, or mobile homes.
An Actual Cash Value (ACV) policy, by contrast, will pay you only the actual cash value, but you can’t get that depreciation back. Let’s discuss this one a bit more.
What Is Actual Cash Value?
The Actual Cash Value coverage is the value of your 10-year old roof (and other items) just before the covered peril, like a hailstorm. A 10-year old roof with a 30-year lifespan has used 33% of its life expectancy. This lost value is known as depreciation. An ACV policy will not pay to cover for this 33% used or depreciated over time. Beyond age, insurance companies also consider the condition of an item when calculating the ACV.
It is also essential to note, only physical items depreciate.
What is Recoverable Depreciation?
Recoverable Depreciation is an item’s loss of value over time or normal wear or deterioration. Insurance companies calculate Depreciation to value your roof when you file a claim.
For example, 33% of the roof’s value has been depreciated, but this associated amount can be recovered with an RCV policy.
How Do You Recover Your Depreciation?
We just discussed that with an RCV policy, you could recover the depreciation. But how do you get it back?
With many RCV policies, your liability insurance initially pays only the Recoverable Depreciation until you complete any included scope of work (such as replacing your asphalt shingle roof). Unfortunately, this can mean your insurance company expects you to pay for and cover these costs until you receive the additional insurance funds.
Further, with most insurance policies, you have a defined amount of time to complete all work. It is critical to review your insurance policy and ask for written documentation (not just a verbal response) to understand how long you have to complete the agreed scope of work before you lose the ability to recover your Depreciation.
There is hope, however. Your insurance policy will state that you need to incur the cost but not necessarily have paid for the associated expenses. If you sign a contract to complete the work, you have incurred the entire cost of that contract even if you’ve not completed the work or paid the contractor. Providing a signed contract to your insurance company often is enough for the insurance company to release your recoverable depreciation.
You also don’t have to complete everything to recover the depreciation. Your insurance estimate likely includes many line items and, depending on the extent of damage, may consist of several sections (such as roof, detached garage, front windows, etc.)
If you begin doing the work and replacing items, provide the receipts to the insurance company. The insurance company is required to release your depreciation on those specific items as you incur the costs. Many insurance companies will release all the Depreciation once you prove you completed the most expensive item, like a roof.
Last, you can ask for an extension. If you don’t have the money to pay for replacement or repair, we recommend asking your insurance company for an extension. A reputable insurance company will agree to more time – and be sure to get this extension in writing.
What is My Deductible?
Valid insurance policies have a standard list of elements: Declarations, Insuring Agreement, Exclusions, and Conditions. For this post and to direct you to your insurance deductible, we’ll focus on the Declarations page. The Declarations page is the first part of an insurance contract and lists the deductible (the amount you are responsible for covering). Insurance policies used to have a fixed amount, such as $1,000, but more are shifting to a percentage of home basis.
Calculate Your Insurance Claim
It’s time for some math. Let’s make up an example.
It recently hailed in Denver. You’ve filed an insurance claim, and your insurance company agreed there is enough hail damage to warrant a roof replacement. According to the insurance estimate, you see the following. (This example does not focus on code requirements and any necessary supplement items – just keeping it simple.)
Replacement Cost Value: $10,000
Less Depreciation: -$3,000
Actual Cash Value: $7,000
Less Deductible: -$2,000
Net Claim: $5,000
Recoverable Depreciation: $3,000
Net Claim w/ Recoverable Depreciation: $8,000
You can receive $8,000 from your insurance company towards your $10,000 total claim amount. You are responsible for $2,000 with your deductible. Combined, your $2,000 + $8,000 paid by insurance = $10,000 Replacement Cost Value.
Insurance claims can be confusing. We can help. Let the experts at Metro City Roofing guide you through the entire insurance claims process, including understanding the RCV, ACV, Depreciation, and Deductible amounts.
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In the United States and Canada, meteorologists refer to the Great Plains region as “Hail Alley.” “Hail Alley” is a region from southeast Wyoming, northeast Colorado, western Nebraska, and Kansas that produces not necessarily the largest hail, but the most frequent hail in the United States. This region is uniquely susceptible to hail due to its location near the Rocky Mountains. Of course, other states like Missouri, Oklahoma, Texas, and even Minnesota often receive numerous hailstorms each year. As a top roofing contractor in Colorado, we are experienced working with insurance companies to settle your hail damage claim successfully.
Working with Metro City Roofing is hassle-free. You pay your insurance deductible – that’s it. No surprises.
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Metro City Roofing is a Colorado roofing company, headquartered in Denver, CO. We specialize in hassle-free professional roofing and will treat your home like our own.
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