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Roof coverage terms demystified

by: Kirsten Land on May 15th, 2018 about Insurance

When looking at your insurance policy for roof coverage, it’s easy to get confused. Every industry has its fair share of jargon, and the roofing industry and insurance industry are no different.

Let’s take a look at some of the terms you might see in your insurance policy when it comes to repairing or replacing your roof.

Actual cash value (ACV)

Actual cash value takes the total replacement cost of your roof and subtracts the depreciation. If you have an ACV policy on your roof, there’s a good chance you’ll end up paying something out of pocket for a roof replacement. How much you pay out of pocket will depend on the depreciation of your roof.

Depreciation

Depreciation is the loss of value over time of any product, including the roof of your home. Insurance companies determine the depreciation of a product based the expected life of the product, age, and wear and tear. Basically, it’s an estimate of how much of the total product value has been lost due to its age or other factors.

Recoverable depreciation

If you have a total replacement cost policy, then you will also have recoverable depreciation. That means the insurance company will pay you for some or all of the depreciated value, provided you meet the requirements. For most roof claims, your insurance company will first write a check for the actual cash value of the roof. Then, once the roof replacement is complete, they will write a check for the recoverable depreciation.

Deductible

Most homeowner policies include a deductible, which can be a set dollar amount or a percentage of your home’s total value. The deductible represents the amount you must pay out of pocket before the insurance company will pay the claim. However, it’s not an amount you actually pay to the insurance company, but rather an amount that’s subtracted from the claim amount they pay. For example, if you have a $1,000 deductible and your claim is for $9,000, then the insurance company will write a check for $8,000. You will then pay the roofing contractor the difference of $1,000.

Overhead and profit

A roofing company that acts as a general contractor will oversee your entire roofing project, which includes hiring the various trades needed (guttering, painting, etc.), obtaining permits, and coordinating the flow of the project. In order to run their business, they have overhead expenses for office space, administrative tasks, licensing, advertising, and more. Profit is the difference between the cost of goods sold and the price for which they are sold. Overhead and profit can vary significantly in the roofing industry, but most insurance companies will include a set percentage of overhead and profit that a company can include in the claim.

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