First a little history to help consumers understand the issues surrounding roof claims and the struggles facing insurers and consumers. At least 15 years ago when severe storms were constantly pounding the Southeast and Midwest, roof claims skyrocketed. There was a time when insurers would typically pay the full loss repairs upfront before any repairs began. Though not necessarily the majority of roof claims, fraud by homeowners and roofing contractors increased dramatically around this time. Some roofs were either left unrepaired after payment but more so, unscrupulous roofers would entice consumers by offering to “pay their deductibles” by inflating their repair estimates or even worse actually creating or worsening damage to roofs to simulate hail damage and causing full roof replacements. These practices inflated claim payouts significantly and insurers responded to prevent even more dramatic increases in homeowner premiums. In addition to separate wind and hail deductibles, insurers changed handling of claim payouts to hold out a percentage of the repair costs until work was completed, increased scrutiny on roof damage, analyzed roof contractor patterns and started adding discounts as well as acceptability guidelines around roof age. State Insurance Departments also aided efforts by tracking some of these issues within their fraud units.
These events led to variations of coverage options within today’s insurance markets. These options vary by insurer, geographic region, roof type and roof age typically. An insurer may allow a consumer with a newer roof to choose between these options, however, if a home has an older roof, the “option” or coverage endorsement may be mandatory for coverage to be accepted by the carrier.
One of these coverage options is referred to as a roof Payment Schedule which outlines the payment calculation for roof replacement costs in the event of a covered loss. In a roof payment schedule, the insurance company specifies the amount of money that it will pay for roof replacement costs, typically as a percentage of the total cost of the replacement. The payment schedule is based on the type of roof, its age, and other factors that affect the cost of replacement.
For example, an insurance company may have a roof payment schedule that states that it will pay 80% of the cost of replacing a 15-year-old asphalt shingle roof. This means that if the cost of replacing the roof is $10,000, the insurance company will pay $8,000 and the policyholder. The policy deductible will also be applied to the final payout as well, which would lower this amount further by either a flat amount or a percentage of your dwelling limit. It’s important to note that the roof payment schedule may be different for different types of roofs and may be subject to certain limitations and exclusions.
A similar option may simply state that a loss involving roof replacement would be determined on an Actual Cash Value (ACV) basis. This would simply equate to a roof that has a 20-year estimated life span would receive a percentage of the replacement cost value depending upon its age at the time of loss. For example, if this roof had significant covered damage when it was 10-years old, then the insurer’s payout would be 50% of the full replacement cost less the policy deductible. Here a $10,000 roof replacement would result in an evaluation of $5,000 less your applied deductible.
The most robust coverage evaluation remains Replacement Cost, which does not account for depreciation. Only the policy’s applicable deductible would apply to the full cost of roof replacement for a covered loss in determining the amount of insurance paid to the consumer. With the same $10,000 roof repairs from above, you would receive the full $10,000 less your applied deductible.
The difference between these different evaluation methods (in combination with your selected wind/hail deductible) could mean a difference in tens of thousands of dollars at the time of loss. How much are you willing to lose in a claim payout for a little premium savings? Weigh your options carefully and understand the implications of policy choices.
Policyholders should always carefully review their insurance policy and all endorsements to understand their coverage, each and every year. Some insurers may change coverage for a roof at renewal. This means that some insurers will initially offer Replacement Cost for insureds with roofs that are 5, 10 or 15 years old, but at a later renewal date when their roof is of a certain age, their coverage could shift to ACV or a Payment Schedule. Be sure to review your policy each and every year. If you would like a coverage or renewal review, be sure to contact us at LG Insurance Group. We are happy to assist you!