Will Your Homeowners Insurance Replace Your Roof?

Feb 26, 2015

With the recent weather our area has seen, roof replacement is a reality for many due to heavy amounts of snow and ice.

While many of us don't dive too deep into our homeowner's insurance policies, now is probably a great time to review your policy and determine what is covered and what is not. Most people simply expect that if their roof is destroyed by a storm or other event, the insurance company will pay the costs to repair it, minus the deductible.

But that’s not necessarily the case. Many insurance carriers have been going to an underwriting approach that keeps premiums down, but lowers the total amount that is payable for roof repairs. These carriers don’t insure the roof for the actual cost to replace it, but for something called “actual cash value.”

Here’s how it works: We all expect to have to replace roofs every 15 to 20 years or so. For this reason, roofs are a depreciating asset. From an accounting perspective, their cash value is highest when they are new – and then they gradually decrease in value through depreciation and wear and tear. An old roof is simply less valuable than a new roof because of the inevitability of replacement.

If your homeowners insurance covers the actual cash value of a roof rather than the replacement cost to calculate benefits, it will subtract depreciation from your settlement amount. This results in lower compensation from the insurance company – but it also allows them to set lower premiums.

The lower compensation for a destroyed roof isn’t a terrible thing if you’ve been putting money aside to replace the roof. After all, you were going to replace it anyway. Storm damage would just move the timeline to the left, and the insurance company would cover the money you didn’t get a chance to save because the storm destroyed your roof before the scheduled replacement date.

This really hurts people who have not or could not save in advance to replace their roofs. Many people whose roofs were damaged or destroyed by terrible winter storms will get an unpleasant surprise when their settlements come in. That's where Widget Financial can help! Our personal or home equity loans are great for unexpected expenses such as roof repairs or replacements. If you find yourself in this situation, consider letting Widget Financial help you every step of the way!