After several years of unprofitability and further spurred on by the severe weather we have been experiencing in the Midwest the insurance industry is reacting by making one of the most dramatic changes to Missouri homeowner policies in decades. The problem is that many of the companies are not informing their policyholders of these changes.
As a consumer it is very important that you realize the difference between the different roof settlement options:
Actual Cash Value
Hybrid Replacement Cost/ACV
Separate Wind/Hail Deductibles
Up until recently, most homeowner policies have been replacement cost policies. Meaning that if your roof is destroyed by wind or hail your roof would be completely replaced and your out of pocket would only be your wind/hail deductible. Example, your roof is completely destroyed by wind/hail and it’s going to cost $15,000 to replace it. The company will deduct the wind/hail deductible amount which is typically around $1500 so you will be reimbursed $13,500. Replacement cost is by far the best method for the consumer.
Actual Cash Value – Missouri Homeowner Policies
A new trend is to offer Actual Cash Value (ACV) coverage on your roof. With ACV coverage the company will replace your roof, less the deductible and less the depreciation of your roof. Example, your roof has been completely destroyed by wind/hail and it’s going to cost $15,000 to replace it. The company will depreciate the roof 50% because it is 10 years old. So the amount paid for the roof will be $7500 and then they will deduct the $1500 roof deductible. Total reimbursement $6,000. The Actual Cash Value endorsement is not always a bad thing. Even though it will produce a much lower reimbursement it also allows us to write homeowners policies on homes with older roofs which would be otherwise ineligible for a homeowner policy.
Hybrid Replacement Cost/Actual Cash Value
The insurance company provides replacement cost coverage for a certain amount of years, let’s say 10, and they apply an Actual Cash Value payment schedule and they will depreciate the roof according to the schedule. Example, your $15,000 roof is destroyed. If the roof is only eight years it will be paid on a true replacement cost basis. You will be paid $15,000 less your wind/hail deductible. The same scenario as above but If your roof is 15 years old and the depreciation schedule stipulates 70% depreciation level they will depreciate your roof 30%, the roof will be depreciated by $4500 and then the wind/hail deductible will be applied.
Separate Wind/Hail Deductibles
Most companies are now using separate wind/hail deductibles. Some are quite reasonable. Most are around $1500. However, some companies use a percentage of the home’s value. So if you have a $400,000 home and the wind/hail deductible is 1% your wind/hail deductible will be $4,000. We’ve also seen 2% deductibles. The same home would have an $8,000 wind/hail. There are also companies that will automatically raise your deductible once your roof reaches a certain age.
As stated in the beginning of this article many companies are less than forthcoming about their roof reimbursement methods. That is why you must know your companies method of reimbursement.
Now the Good News For Missouri Homeowner Policies
Our clients are very fortunate that most of the companies still use the true replacement cost method which is the best for most policyholders. This is how it currently stands and we attempt to make sure you are made aware of any changes.
Below is a list of the companies we represent and their method of roof reimbursement:
Safeco Insurance Company – Full replacement cost less wind/hail deductible
Travelers Insurance Company – Full replacement cost less wind/hail deductible
Secura Insurance Company – Full replacement cost less wind/hail deductible. Actual Cash Value for new policies with roofs over 15 years old. Actual Cash Value Endorsement added to policies renewing with a 20-year-old roof.
Electric Insurance Company – Full replacement cost less wind/hail deductible which is a mandatory $1500 deductible. After the roof is over 15 years the mandatory deductible goes up to $2500.
State Auto Insurance Company – Full replacement cost less mandatory $2,000 deductible.
Hartford Insurance Company – Full replacement cost if the roof is 20 years or less. 1% mandatory wind/hail deductible.
Lititz Mutual Insurance Company – Full replacement cost for the first ten years, after the 10th year a depreciation schedule is added to the policy.