Saving Money on your Homeowner policy with a Roof Schedule?
by Joseph Gutierrez, CIC
With a record number of claims attributed to natural disasters, insurance company losses have increased dramatically over the last decade. Now several carriers only offer one type of loss settlement when it comes to your roof, a Roof Schedule.
First, let’s talk about replacement cost coverage as it pertains to your roof. Historically, most carriers offered either Replacement cost coverage or Actual Cash Value.
Replacement cost is defined as the cost fix or replace the damage less your deductible.
Actual Cash Value is the Replacement Cost minus depreciation (typically 1-3% per year) less your deductible.
With Replacement cost regardless of the age of your roof your insurance policy will pay the current price to fix or replace your roof if damaged by windstorm, hurricane or hail. The average cost to replace a roof today depending on size is about $20,000. With the increase in cost to replace the roof you can see how claims can quickly mount.
Actual Cash Value will pay less. Let’s use a 5-year-old roof for example. At $20,000 to Replace your roof. Your payment will depreciate an average of 2% (1-3%), giving a 10% depreciation on average for a 5-year roof. This means the Insurance company will pay $20,000 minus $2,000 (depreciation)- your deductible. Every 5 years given this example they will pay you $2,000 less.
A Roof Schedule typically depreciates at a higher faster rate, giving more financial responsibility to the homeowner. The schedule will dictate the terms. You will receive the largest discounts since you will be assuming more of the financial risk in the event of a claim. Let’s assume the same $20,000 roof is damaged due to hail. Your roof is 10 years old on a roof schedule. With 5% average depreciated per year for 10 years, this puts your depreciation at 50% after 10 years less deductible. So $20,000 – $10,000 (roof schedule depreciation) less your deductible. After you consider your deductible, you may have to pay the entire roof on your own between the 10-15 years of your roofs age.
The average deductible has increased from 1% of the value of your home to 2%.
With a $400,000 home a 1% deductible is $4,000 and a 2% deductible is $8,000.
With a roof schedule and a 10-year-old roof, and a roof replacement cost of $20,000 the Insurance company will be responsible for:
With a 1% deductible
$20,000 roof cost – $10,000 (Roof Schedule Depreciation) -$4,000 (deductible) = $6,000
And the homeowner will now be responsible for $14,000
With a 2% deductible
$20,000 roof cost – $10,000 (Roof Schedule Depreciation) -$8,000 (deductible) = $2,000
And the homeowner will now be responsible for $18,000
In summary, yes you can save money with a Roof Schedule, however you do so by assuming a lot more financial responsibility. Everyone has a different situation, and if you’re comfortable with a Roof Schedule it may be the right choice for you.