Insurance Insights Is Your Roof Covered?
Most people don't read too deeply into their homeowner's insurance policies, especially when it comes to the roof. Most of us expect that, if the roof were to sustain damage from a storm or other event, our insurance will pay the costs to repair it (minus the deductible, of course).
But that's not necessarily the case. Insurance carriers have moved to an underwriting approach that, while it tends to keep premiums down, can lower the total amount available for roof repairs in the event of a claim. This method is called "actual cash value."
Here's how it works: A roof needs to be replaced every 15 to 20 years, making roofs a depreciating asset. From an accounting perspective, their cash value is highest when they are new, and they gradually decrease in value through wear and tear. An old roof is simply less valuable than a new roof because replacement is both nearer and inevitable.
If your homeowners insurance uses "actual cash value" method rather than "cost to replace" method to calculate a claim, depreciation will be deducted from your settlement amount, resulting in lower compensation from the insurance company in the event of a claim. While the upside of this is a lower monthly premium, the downside is that if you're not putting something in savings to replace your roof, you could eventually be stuck covering the rest of the repairs yourself.
It's worth a quick call to your insurance agent to double-check your coverage and make any appropriate adjustments.
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