Understanding Roof Insurance Coverage: Replacement Cost vs. Actual Cash Value
By Melinda Robinson, Personal Lines Advisor at Andres O’Neil & Lowe Insurance Agency
As a homeowner, your roof is one of your most valuable assets—it protects everything underneath it. But when storm damage strikes, having the right insurance can make a huge difference in how you recover. At Andres O’Neil & Lowe, we often receive questions about the differences between Replacement Cost (RC) and Actual Cash Value (ACV) coverage for roof repairs or replacements. Let’s break down these two options and highlight some key trends in the insurance industry when it comes to roof claims.
Replacement Cost (RC) vs. Actual Cash Value (ACV)
Replacement Cost (RC):
This type of coverage pays the full cost to replace your damaged roof with materials of similar quality, without considering depreciation.
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Higher premiums, but full protection: Your insurer will pay to replace your roof at today’s costs, covering materials and labor.
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No depreciation deductions: If a storm causes damage, you’ll get enough to fully repair or replace the roof, minus your deductible.
Actual Cash Value (ACV):
ACV coverage factors in depreciation, meaning it only pays for the current value of your roof based on its age and condition.
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Lower premiums, but out-of-pocket costs can be higher: Older roofs are worth less, so you’ll receive less after a covered loss.
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Depreciation impacts payouts: If your 15-year-old roof is damaged, the amount you receive will reflect how much value the roof has lost over time.
Let’s look at an example:
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A storm causes $15,000 worth of damage to your roof. If you have RC coverage, your policy would pay $12,500 after your $2,500 deductible.
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With ACV coverage, if your roof has depreciated to $9,500, you would only receive $7,000 after your deductible.
Key Trends and Changes in Roof Insurance Claims
The insurance industry has been facing rising costs and increased risks, especially due to more frequent and severe weather events. These changes have impacted how insurance companies approach roof claims:
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Increased Catastrophic Storms: In recent years, severe weather has driven up claims. 2023 set records for storm-related damage, with $92.9 billion in weather-related losses. More storms mean more roof claims, leading to higher premiums. Storms are not the only reason for premium increases; check our blog article to understand other reasons for the rising cost of insurance.
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Tighter Underwriting Guidelines: As part of adjusting to a harder market, insurers are tightening guidelines. For example:
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Age restrictions: Roofs older than 10 to 15 years are often no longer eligible for RC coverage with many carriers. Previously, the common eligibility was 20 to 25 years.
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Deductibles: Insurers are increasingly requiring higher deductibles for wind or hail damage, particularly for older or more vulnerable roofs.
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Material-Specific Exclusions: Some insurers now exclude cosmetic damage to metal roofs or will not offer coverage for wood roofs in certain areas. This effort aims to manage risks more effectively and control losses.
What Homeowners Should Do
As these trends continue, it’s more important than ever to understand what your homeowners insurance policy covers and what changes could impact you. Here are a few tips:
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Review Your Coverage Regularly: Know whether you have RC or ACV coverage, and how it applies to your roof’s age and condition. As roofs age, premiums and deductibles may change, and some coverage could be removed. Consider asking your agent if you are eligible to buy-back roof replacement on a roof that is currently covered for actual cash value.
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Consider Roof Upgrades: If your roof is nearing the age limit for RC coverage, it might be worth upgrading sooner rather than later to maintain full protection.
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Ask About Policy Changes: The industry is evolving, and some policies are seeing shifts in roof coverage due to weather trends and insurer profitability concerns.
At Andres O’Neil & Lowe, we’re here to help you navigate these changes and ensure your home is protected. If you have questions about your roof coverage or would like to review your policy, reach out to us.
Sources: Cinfin.com, grange.com
