Roof Coverage Settlement Options
How Insurance Companies Decide What They’ll Pay for Your Roof: Replacement Cost, Actual Cash Value, and Roof Payment Schedules
When shopping for home insurance, understanding how each company values your roof can help you avoid costly surprises after a claim. Insurers use one of three main valuation methods for roof coverage: Replacement Cost (RC), Actual Cash Value (ACV), and the newer Roof Payment Schedule (RPS). Each method affects premiums, payouts, and your out-of-pocket costs, especially for common roof-related claims like windstorm and hail damage.
Many policies limit ACV or Roof Payment Schedule coverage to damages caused by windstorm or hail, while other perils, such as fire, may still be covered at full Replacement Cost. In addition, some insurers may decline to write a home insurance policy if the roof is over 15 years old. Understanding these nuances is crucial as you evaluate policies and weigh coverage options for your home.
Let’s break down these valuation methods and examine a sample Roof Payment Schedule so you can see how each affects your roof coverage.
Replacement Cost (RC): Full Coverage for Roof Replacement
Replacement Cost (RC) offers the most comprehensive roof protection. With RC, the insurance company pays the full current cost to repair or replace your roof without subtracting for depreciation. This means your insurer covers whatever it takes to restore your roof to its original condition, regardless of its age or wear and tear.
Example of Replacement Cost Coverage: Imagine a storm damages your 10-year-old roof, and the replacement cost is $15,000. With RC, your insurance would cover the entire $15,000 (minus your deductible), regardless of your roof’s age.
Why it Matters: Replacement Cost provides maximum protection and often applies to any peril that damages your roof, including windstorm, hail, and fire. However, premiums are generally higher because of the extensive coverage. If minimizing out-of-pocket costs in a claim is a priority, RC is worth considering.
Actual Cash Value (ACV): Coverage Reduced by Depreciation
Actual Cash Value (ACV) covers the replacement cost of your roof, minus depreciation based on age and condition. In other words, the older the roof, the less coverage your insurance company will provide for a claim. ACV is commonly used for windstorm and hail damage claims, though fire and other perils may still qualify for Replacement Cost coverage.
Example of Actual Cash Value Coverage: If a hailstorm damages your 15-year-old roof and the replacement cost is $10,000, ACV would cover only $5,000 (minus your deductible) due to depreciation. You would be responsible for the remaining $5,000 out of pocket.
Why it Matters: ACV is often more affordable but can lead to higher out-of-pocket costs if your roof is older. Before choosing ACV, check with your mortgage lender, as some require Replacement Cost coverage to ensure the property is adequately protected.
Roof Payment Schedule (RPS): A New Approach with Predictable Payouts
The Roof Payment Schedule (RPS) is a newer coverage option that some insurers, like Safeco, have introduced. This method uses a predetermined schedule to determine your claim payout based on your roof’s age. Coverage percentages decrease as the roof gets older, offering predictable but reduced coverage as time goes on. Like ACV, RPS is typically used for windstorm and hail damage claims, while other perils may be covered at Replacement Cost.
Example of a Roof Payment Schedule: Below is an example Roof Payment Schedule from a nationa linsurance company. This schedule shows the exact payout percentages based on your roof’s age for windstorm or hail claims.
Why it Matters: RPS can lower premiums, as coverage reduces predictably with roof age. However, this schedule means your out-of-pocket costs may rise over time. It’s especially useful if you’re comfortable with reduced coverage as your roof ages, but it’s important to consider that replacement costs will decrease significantly beyond 15 years.
Why Roof Valuation Knowledge Matters When Choosing Insurance
Knowing your roof valuation type is essential when shopping for insurance, especially as coverage varies by insurer. Some homeowners assume they have Replacement Cost coverage, only to discover they have ACV or RPS, which could result in a much lower payout than expected.
Additionally, note that some insurers won’t write a policy for a home with a roof over 15 years old, even if it’s in good condition. If your roof is approaching this age, be sure to confirm coverage options and any restrictions with potential insurers.
Important Reminder for ACV Policies: If your policy uses ACV, verify with your mortgage lender that they accept this coverage type, as some may require Replacement Cost coverage to protect their investment in your home.
Key Questions to Ask About Roof Coverage When Shopping for Insurance
- Which valuation method applies to my roof? Replacement Cost, ACV, and RPS each have different impacts on your premiums and potential claim payouts.
- Are windstorm and hail claims covered differently? Confirm if ACV or RPS is used specifically for wind and hail damage while other perils may still be covered at Replacement Cost.
- Is Replacement Cost available as an endorsement? Some insurers allow you to “buy back” Replacement Cost coverage for an additional premium.
- What’s the maximum roof age for eligibility? Many insurers limit coverage or may not write policies for homes with older roofs, especially over 15 years.
Find the Right Roof Coverage with Huff Insurance
At Huff Insurance, we know that understanding roof coverage options is essential for Maryland homeowners. As an independent agent, we provide access to multiple insurers, helping you find policies that meet your budget and roof coverage needs. Since 1960, we’ve been assisting our clients in navigating complex insurance choices, ensuring their homes and investments stay protected. Contact us today to learn more about your roof valuation options and protect your home with confidence.
When buying or comparing home insurance, it’s easy to assume that if your roof gets damaged, the insurance company will just cover it, right? Not quite. Insurance companies calculate what they’ll pay to repair or replace your roof based on one of three methods: Replacement Cost (RC), Actual Cash Value (ACV), or a newer option called the Roof Payment Schedule (RPS).
Understanding these options is important because they can greatly affect your out-of-pocket costs, especially if your roof is damaged by common perils like wind or hail. Here’s a breakdown of how each method works with a sample scenario so you can see how these options impact your payout.
Scenario: $50,000 Roof Damage Claim
Suppose a severe windstorm hits, causing $50,000 in damage to your 15-year-old composition roog. Also assume that the roof was determined to have a 30 year expecdted life span. We’ll look at how each valuation method affects your claim payout. In this scenario, we’ll assume:
- Your roof has experienced general wear and tear over the years.
- Your deductible is $1,000.
Replacement Cost (RC): Full Coverage Without Depreciation
With Replacement Cost coverage, the insurance company pays the full cost to repair or replace your roof at today’s prices. This means they don’t subtract anything for the roof’s age or condition. Replacement Cost covers whatever it takes to bring your roof back to its original condition using similar materials, minus your deductible.
Example Using Replacement Cost:
- Total repair cost for roof damage: $50,000
- Deductible: -$1,000
- Insurance payment: $49,000
- Out of Pocket to Replace Roof: $1,000
Why it Matters: Replacement Cost offers the highest level of protection, as you’re only responsible for your deductible. This option is ideal if you want full coverage for your roof with minimal out-of-pocket expenses, but it generally comes with higher monthly premiums.
Actual Cash Value (ACV): Coverage Adjusted for Age and Wear
Actual Cash Value (ACV) takes the roof’s age and condition into account by applying depreciation. This means the insurance company calculates how much your roof is worth today, subtracting value based on both age and wear. The older and more worn the roof, the less they’ll pay out. ACV is often applied specifically for wind and hail damage.
Let’s look at two examples for ACV, showing how different levels of wear affect your payout.
Example 1: Standard Depreciation (15-Year-Old Roof)
In this case, we assume typical wear and tear for a 15-year-old roof. Over time, the roof has depreciated by about 50% (a common rule for older roofs). Here’s how the payout would look:
- Total repair cost for roof damage: $50,000
- Depreciation (50%): -$25,000
- Deductible: -$1,000
- Insurance payment: $24,000
- Out of Pocket to Replace Roof: $26,000
Example 2: Heavy Wear and Tear
If your roof has had heavier-than-average wear—for instance, from extreme weather exposure, lower-quality materials, or insufficient maintenance—its value could be lower than 50%. Let’s assume the roof’s value has depreciated by 65% under these conditions.
- Total repair cost for roof damage: $50,000
- Depreciation (65%): -$32,500
- Deductible: -$1,000
- Insurance payment: $16,500
- Out of Pocket to Replace Roof: $33,500
Why it Matters: ACV coverage typically comes with lower monthly premiums, making it an affordable choice. However, this also means your payout can be significantly lower on an older or heavily worn roof, leaving you with a larger out-of-pocket expense. If you’re considering ACV, check with your mortgage lender to ensure they accept this type of coverage, as some lenders may require full Replacement Cost.
Roof Payment Schedule (RPS): Pre-set Payouts Based on Roof Age
The Roof Payment Schedule (RPS) is a newer option used by some insurers, like Safeco, that provides a predictable payout schedule based on the roof’s age. RPS usually applies to claims for wind or hail damage, while other types of roof damage, like fire, may be covered at Replacement Cost.
RPS assigns a percentage payout based on the roof’s age, with older roofs receiving a lower percentage. In this case, a sample roof payment schedule might look something like this:
Please note that roof schedules can and will vary by insurance company. Please check your policy for specific details for your home.
Since our roof is 15 years old, the insurance company would pay 55% of the replacement cost, according to this schedule, minus the deductible.
Example Using Roof Payment Schedule:
- Total repair cost for roof damage: $50,000
- Payment schedule percentage (15-year-old roof): 55%
- Payout amount: $50,000 x 0.55 = $27,500
- Deductible: -$1,000
- Insurance payment: $26,500
- Out of Pocket to Replace Roof: $23,500
Why it Matters: RPS may have lower premiums than Replacement Cost coverage and provides a clear, predictable payout based on your roof’s age. However, the percentage decreases significantly as the roof ages, meaning you could face high out-of-pocket costs if you need to replace an older roof.
How the Three Roof Valuation Methods Compare
Here’s a summary showing how each method affects your payout in our scenario:
As shown above, Replacement Cost offers the most coverage with the least out-of-pocket expense, while ACV and RPS provide less coverage, especially as the roof ages. Additionally, higher wear and tear can significantly impact the payout with ACV, leading to an even higher cost if the roof is in poor condition.
What You Need to Know When Shopping for Your Home Insurance
When selecting a home insurance policy, it’s essential to understand the roof valuation method used, especially if you have an older roof. Here are some questions to ask:
- What type of roof coverage does the policy offer? Make sure you know if it uses Replacement Cost, ACV, or RPS for roof damage claims.
- Is wind and hail damage covered differently than other types of damage? Many policies only use ACV or RPS for wind and hail damage, while other types of damage, like fire, may still be covered at Replacement Cost.
- Can I pay extra to get Replacement Cost? Some insurers offer an option to upgrade from ACV or RPS to Replacement Cost for an additional premium.
- What’s the maximum roof age allowed for coverage? Some insurers won’t cover roofs over 15 years old. Or they may restrict coverage to ACV or RPS for older roofs.
Get the Right Roof Coverage with Huff Insurance
At Huff Insurance, we know that understanding roof coverage options can make a huge difference when it’s time to file a claim. As an independent agent, we work with multiple insurers, so we can help you find a policy that matches your budget and roof coverage needs. Since 1960, we’ve been helping Maryland residents protect their homes. And we’re here to help you make the best choice for your roof and your wallet. Contact us today to learn more about your options for roof coverage and get the right protection for your home.
