Did your roof get damaged after a recent storm? Are you trying to figure out what your insurance policy actually covers and pays out?
Dealing with damage after a strong storm is stressful enough. But then you also add dealing with the insurance company to get it taken care of on top of it.
Insurance claims aren't the easiest thing to navigate if you haven't been through the process before. So, let's start at the beginning with the type of policy you have.
When looking at your insurance paperwork, you’ll either have an ACV policy or an RCV policy. So, what’s the difference between the two? Is one better than the other?
For over 35 years, Bill Ragan Roofing has helped homeowners like you understand their insurance policy and what it means to their roof damage claim. That's why I'll break down both types of insurance policies, including examples of them in action.
By the end of this article, you'll learn:
- What is an ACV policy?
- What is an RCV policy?
- Is an ACV policy or an RCV policy better for your roof?
- What does it mean to supplement an RCV policy insurance claim?
- Are insurance companies still offering RCV policies?
What is an ACV policy?
An ACV policy stands for Actual Cash Value, which means insurance only pays out for the current value of the roof. So, with an ACV policy, the original roof's value is depreciated based on age at the time when filing a claim.
And once the claim is approved, you’ll only get a check for the actual cash value that the insurance company deems your roof is worth. This leaves you paying out of pocket to make up the cost difference between insurance and the roofing contractor.
What is an RCV policy?
An RCV policy stands for Replacement Cost Value, which means insurance is supposed to pay to replace your roof with a brand new version of itself. However, you don’t get a check for the full amount upfront.
When your claim is approved, the insurance company gives you an estimate to replace your roof. First, you’ll get a check for the actual cost value of your roof while the insurance company holds back the recoverable depreciation.
After finding a roofing contractor and getting your roof replaced, you’ll provide proof that the scope of work was done in accordance with the claim. As long as everything checks out, your insurance company sends another check that covers the rest of the cost of your new roof.
Just know if you don’t get the work done or don’t follow the scope of work, you won’t get a second check for the depreciated part of the claim.
Is an ACV policy or an RCV policy better for your roof?
After learning what each policy offers, you should have a good idea of which one is better for your roof. But let’s see the policies in action using an example scenario.
Keep in mind these numbers are entirely made up and are only used to help you understand what each policy looks like in action. For the scenario, we’ll say your roof is 10 years old and you originally paid $12,000 to get it installed.
Actual Cash Value policy scenario
With an ACV policy, the insurance company calculates the amount your $12,000 roof depreciated over the last 10 years and sends you a check for $6,000 (minus your deductible). You’ll be able to use this $6,000 check towards your roof replacement.
But after getting an estimate from a roofing contractor, the cost for a new roof ends up being $15,000. Obviously, the $6,000 check won’t cover the entire replacement.
This means you’ll have to pay the remaining $9,000 out of your pocket. I know that number is intimidating, and it can be tempting to try to find a lower price or even a roof that costs a total of $6,000.
But just know, a cheap roof equals cheaper quality and labor. This sets your roof up for premature roof failure from the very beginning.
Replacement Cost Value policy scenario
For an RCV policy, you’ll get the first $6,000 actual cash value check, just like an ACV policy. But unlike the ACV policy, the $9,000 (minus your deductible) will also be covered by the insurance company after the work is completed.
Just remember that you have to submit proof that the scope of work was done in accordance with the claim before insurance sends the rest of the money. You also need to keep in mind that the insurance company only pays to restore your old roof to a brand new version of itself.
So if you want to upgrade your asphalt shingle or to a different roofing material altogether, you’ll have to pay out of pocket to cover the difference.
So, which insurance policy is better for your roof?
At the end of the day, both policies protect your roof if it’s damaged by a storm. But a Replacement Cost Value policy offers more financial protection when filing a claim for roof damage.
That’s not to say an Actual Cash Value is bad. It’s just that you’ll spend more of your own money if the actual cash value check won’t cover the scope of work needed.
What does it mean to supplement an RCV policy insurance claim?
With a Replacement Cost Value policy, the insurance company comes up with an estimate to restore your old roof to a brand new version of itself. However, insurance adjusters leave off line items and things your roofer needs to do the job correctly while also making some profit.
That’s why it’s important for insurance claims to be supplemented if anything is missing or the insurance company is trying to avoid paying for something. This ensures every material and component your roof needs is included in the estimate to be paid for by insurance.
This also comes to specific codes, but you need to have a code upgrade policy for insurance to cover them the current roof isn't up to code. That's why supplementing is a big reason to show your insurance paperwork to your roofing contractor.
Are insurance companies still offering RCV policies?
Climate changes and weather patterns have battered roofs all over the United States. This has sent the insurance industry in a frenzy due to their massive losses.
Unfortunately, many insurance companies have stopped offering RCV policies, while also adding more exclusions or pulling out completely. It isn't right, but the insurance industry is changing in major ways.
And the worst part about is that homeowners are the ones left holding the bag. So, even after years of premium payments, we'll soon start seeing insurance companies denying or excluding roofs from policies.
What else can you expect when filing an insurance claim for roof damage?
Now you know the difference between the insurance policies, which one is better, and why an RCV policy insurance claim needs to be supplemented. Unfortunately, RCV polices are becoming a thing of the past when it's time to renew policies.
That's why it’s crucial to look at your homeowners insurance policy before filing a claim, so you know what to expect before even contacting your insurance company. But understanding your policy and filing a claim is just the beginning.
There’s much more you need to know before actually starting the claim process. Because of this, I wrote another article giving you the 6 things to expect when going through the insurance claim process for roof damage.
Check out 6 Things to Expect When Filing an Insurance Claim for Roof Damage to learn what you need to know before starting the claim process.
