Fixing Your Roof: What Should Your Homeowners’ Insurance Pay?

Fixing-Your-Roof-What-Should-Your-Homeowners'-Insurance-Pay-ImageThousands of homeowners sustained roof damage in Hurricane Sandy and had to act fast either to replace or repair it to mitigate further damage.  Many victims had to pay contractors out of their own pockets when their insurance companies denied, delayed or offered a lower amount than deserved.  While fixing a damaged roof is generally a straightforward process, knowing what your homeowners’ insurance policy should pay you for it often is not.

Replacement Cost Versus Actual Cash Value

Most homeowners’ insurance policies provide compensation to fix a damaged roof based on either the replacement cost or on the actual cash value (ACV).  The distinctions between the two can make a big difference in what you get.

Here is what the terms mean and how they work in real life:

  • Replacement Cost.  A replacement cost policy is designed to repair the damage done to your home, less your deductible.
  • Actual Cash Value.  An actual cash value policy is designed to repair the damage done to your home, less your deductible AND less depreciation.

Here is an example of how it works in real life:  The Smith family and the Jones family are next door neighbors and live in identical houses that are 10 years old.  The roofs on their homes have never been replaced and originally cost $10,000 to install.  Each family has a homeowners’ policy with a $1,000 deductible.  There is only one difference: the Smiths’ homeowners’ policy is based on replacement cost and the Jones’ policy is based on ACV.

Hurricane Sandy sweeps through their neighborhood and completely destroys both families’ roofs, causing $10,000 in damage.  The Smiths’ policy will pay them $9,500 (the damage done to their home less their $500 deductible).  The Jones policy will pay them less because they have to figure in the depreciation on a 10-year-old roof – probably about $5,000.  So, they will only receive $4,500 (the damage done to their home, less their $500 deductible AND also less their depreciation of $5,000).

Understand What You Are Entitled to Before Making a Claim

Regardless of whether you have a replacement cost policy or an actual cash value policy, it is important to understand the difference between the two before making a claim with your insurance company so that you will know what to expect.   The experienced bad faith insurance lawyers at Belluck & Fox, LLP can help you through the process and help you fight back when your insurer has not treated you fairly.