With Indiana’s recent hail and wind storms, many Hoosiers have needed to lean on their homeowner’s insurance to help with the damage their roofs have experienced. Unfortunately, many of those same Hoosiers are realizing their coverage is not what they thought it was. Do you know if your homeowner’s insurance has actual cash value (ACV) or replacement cost value (RCV) coverage? Let’s find out now to save a headache potentially a lot of out-of-pocket payments later.
ACV means actual cash value. This is determined by taking the original value of the roof, then subtracting the depreciation and the deductible. Let’s say your roof has a 20-year shingle life, and 10 years into its lifespan, a windstorm leaves it unusable. With ACV, that would be the amount of the replacement cost minus the depreciation, then minus the deductible. Consider this scenario: a homeowner with a $20,000 roof replacement cost experiences wind damage that leaves his roof in need of replacement. After all deductions are applied, he will receive a check from the insurance agency for $20,000 minus $10,000 for the 10 years of depreciation, minus the $1,000 deductible. This leaves him with less than half the amount needed to replace the roof, and little frustrated. Also consider this scenario: the homeowner realizes that not only does he have ACV coverage on his roof, but he also has a separate wind and hail deductible. In this case, it would pay out as follows. The $20,000 minus the $10,000 for 10 years of depreciation, minus a separate 2% deductible of coverage A, coverage A being the replacement cost for the entire home, in this case $300,000. That equals $20,000 minus the $10,000 minus $6,000. This leaves the homeowner with a check for $4,000, and more than a little frustrated.
One of the popular trends for agents quoting new business is to offer ACV. At the Dean Ballenger Agency, we feel that this popular trend is not always best for the client. While we are open to discuss actual cash value policies when it makes sense, all of our current homeowners policies are written with RCV. RCV will pay to replace the roof, regardless of age or depreciation, once you’ve met your deductible. Additionally, make sure that you are not persuaded into believing that every insurance company is switching to this type of ACV roof coverage. They’re not.
Some companies offer RCV as part of their homeowner’s insurance coverage, while other companies offer it as an additional coverage that can be purchased. Either way, this is a conversation that should be had with your insurance agent to protect yourself from what could be thousands of dollars out-of-pocket.