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Roof insurance 101

House with hands

Nevada experiences all sorts of extreme weather year after year. If your roof suffers extensive damage due to hail or a severe thunderstorm, paying for repairs or replacements all on your own would be a tremendous financial burden. If you’re a home insurance policyholder, however, your insurer may cover most of the expenses.

Home insurance policies — also known as homeowner’s insurance policies — also include roof insurance, so there is no need for a separate policy for roofs. This also means that the benefits you receive when you make roof-related claims will depend on the terms of your policy. To better anticipate what you can expect from your insurer, here are the things you need to know:

Terms regarding perils covered

In insurance jargon, a peril is a specific cause of damage or injury. Roof perils can be fire, wind, rain, and hail, among others.

An open perils policy or all-risk insurance contract will cover any damage that is not specifically excluded in the contract. An example of an exclusion is the unoccupancy clause. This clause states that an insurer may suspend the home insurance policy if:

  • The dwelling is unoccupied for a certain number of days (usually 60 days).
  • The homeowner did not notify the insurer prior to leaving their house unattended.
  • The insurer was notified but did not agree that the coverage remain in force despite the unoccupancy.

A suspended policy means that if heavy snow causes your roof to cave in while you’re on a long vacation, your insurer may not cover the cost of the roof replacement. (Note: If your insurer doesn’t grant your request for continued coverage, then hire a house sitter, preferably one who knows how to remove snow buildup or debris on roofs.)

On the other hand, a named perils policy will only cover damage caused by the perils specified in the policy.

Terms of participation

Roof insurance will never cover the entire cost of roof repairs and replacements. Instead, home insurance policies will require the policyholder to first pay a fixed amount called a deductible or participation fee out of pocket before the insurer pays for the rest of the costs.

To illustrate, let’s say your roof is damaged by a wildfire. Repairs cost $4,000, and your deductible is $400. This means that you’ll first have to pay $400 before your insurer covers the rest, which amounts to $3,600. Deductibles are applied per claim, so if a new round of repairs cost $1,000, the policyholder must shell out $400 before the insurer covers the remaining $600. Obviously, policyholders can’t file claims worth less than their participation fee.

Deductibles have a two-fold purpose. First, it prevents policyholders from engaging in risky behaviors (e.g., letting snow accumulate and exceed the load limit of roofs) because doing so will cost them, too. Second, it also relieves insurers of some of the financial burden of covering costs, especially when there are multiple claims being made by other policyholders simultaneously.

The size of your deductible is conversely related to the size of your insurance premium: the higher your premium, the lower your participation fee (and vice versa). During policy renewals, insurance providers may propose to increase your deductible based on the average increase in construction costs in your location. They may also do so if you’ve made a claim previously. Insurers also increase deductibles to dissuade policyholders from making small claims.

As a policyholder, you may request that your deductible be changed from a fixed amount to a percentage of the total cost of repair or replacement. This will make filing small claims more financially feasible, but it will also increase your exposure once your roof requires extensive repairs or replacement.

Terms for claims limits

It is standard practice for insurers to put a limit on the amount they will pay for. Furthermore, insurers in Nevada normally limit repairs and replacements to standard materials that are similar to the ones used in the existing structures. Construction methods are also usually limited to standard techniques. These limits mean the insurer will not pay for:

  • The repair or replacement of components of the undamaged parts of the roof for the sake of matching the appearance of the components of new installations
    If, for example, roof repairs entail the installation of shingles that are noticeably different from the original shingles, then replacing the remaining original shingles with matching ones would be on the homeowner’s account.
  • Obsolete or ancient construction techniques
    If the homeowner wishes that such techniques be employed, they’ll have to pay the costs associated with these themselves.
  • Roof upgrades and additions
    If the homeowner wants to add skylights or use solar shingles when the original didn’t have these*, they’ll have to purchase these out of pocket. (*Note that policies may cover remodels and renovations.)
  • Increased costs due to changes in applicable building codes, ordinances, or laws
    Such additional costs must be covered by the homeowner.

Terms of claims settlement for roof replacements

Your policy may cover up to the full replacement cost value or RCV of your roof or the policy may only cover the roof’s actual cash value or ACV. RCV is self-explanatory: once you’ve paid your deductible, the insurance takes care of the rest. If the price of a new roof is $30,000 and your deductible is $400, your insurer will cover the remaining $29,600.

However, your policy may state that the insurer will only cover the ACV of the roof to be replaced. Unlike with replacement cost, ACV factors in the following:

  • The monetary value of your existing roof if it was just recently finished – How much it would be worth today if it was brand new and in pristine condition
  • The roof’s life span – How long the roof is warranted to last (counted in years)
  • The roof’s rate of depreciation – Normally calculated as the roof’s would-be current value divided by its life span
  • The roof’s age

Let’s say that if your roof was new, its value would also be $30,000. According to the builder’s papers, its life span is 30 years, so it’s rate of depreciation would be $1,000 per year. If the roof is exactly 12 years old, that means it already lost $12,000 in value. Its actual cash value would be $18,000, so after you pay your $400 deductible, your insurer will cover $17,600 in replacement costs.

FYI: Some insurers may include a clause stating that they reserve the right to settle claims by ACV if there are too many claims being filed all at once.

As you can see, claims settlement by RCV is much better than by ACV, though the type of settlement is determined by the insurer. They apply RCV coverage on brand new, relatively young, and well-maintained roofs, but apply ACV on older and less pristine roofs, if at all. Only when an old roof is repaired or replaced will an insurer consider RCV coverage for it.

For more information on roof repairs, replacement, and insurance, talk to our experts at D&D Roofing. Leave us a message or call us at (775) 521-7440.

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