A fallen tree on a roof that will need repair or replacement

Actual Cash Value vs. Replacement Cost | Pick the Best Coverage for Your Roof!

 

Whether disaster strikes and a storm ravages your roof or you simply notice more leaks this rainy season than last, you rely on your roof insurance policy to help you finance roof repairs or replacement. Depending on your policy, you might be insured for the actual cash value of your roof or the replacement cost of your roof. Those are very different things!

You need to understand actual cash value vs. replacement cost roof coverage so you know how much you can expect to pay for your roof repairs. Read on to learn more.

Actual Cash Value Coverage

Actual cash value, or ACV, coverage is exactly what it sounds like: insurance coverage for the present-day cash value of the covered property. In other words, the insurance company will pay you for the value of your roof as it is currently calculated.

That means your claim settlement factors in depreciation, which is calculated by a claims adjuster. When you file a claim for your roof’s actual cash value, the claims adjuster inspects your roof to figure out its replacement cost and determine its current condition.

Say that you have a brand-new roof worth $20,000. It has a lifespan of 20 years with an estimated depreciation rate of 5% per year. If the roof is 10 years old when it needs to be replaced, it’s only worth $10,000 since it has depreciated by about 50%.

In addition, actual cash value insurance policies don’t allow you to use your funds to upgrade your roof. For instance, if your roof is a little worn down and starting to leak, you can’t file an ACV claim to upgrade the roof to a newer, better model with superior materials.

The upside? ACV coverage has a lower deductible requirement before you receive money from your insurance company.

Actual cash value insurance policies:

  • Have low deductibles
  • Take roof depreciation into account
  • May not pay you enough money to fully cover the cost of rebuilding or replacing your roof

Replacement Cost Value Coverage

Replacement cost value, or RCV, coverage is the opposite. In a nutshell, if you have a roof or homeowners insurance policy that includes replacement cost coverage, the insurance company will pay however much it costs to replace your roof with a comparable one.

For example, say that you have a $20,000 roof like in the example above. Once you pay your deductible, the insurance company will pay whatever is left to fund a new roof up to its value of $20,000. Note that replacement cost insurance policies still rely on claims adjusters, who research roofing materials and determine a settlement amount if the exact same type of roof is no longer available.

In exchange, RCV coverage imposes a higher deductible on policy claimants. Furthermore, just like actual cost coverage, replacement cost coverage does not cover the costs of replacing your roof with an upgraded model or better materials. So, if the only available new roof costs you more than the value of your current roof, you’ll have to make up the difference out of your own pocket.

Replacement cost value insurance policies:

  • Have higher deductibles for policyholders
  • Compensate you for the replacement value of the covered loss, like a damaged/destroyed roof
  • Do not cover the cost of roof upgrades/replacing your roof with a better one

The Difference Between Actual Cash Value vs. Replacement Cost

To recap, both actual cash value and replacement cost value coverage help you fund roof repairs or a replacement after disaster strikes. However, actual cash value coverage has lower deductibles, while replacement cost value coverage has higher deductibles.

With an ACV policy, you’ll only receive money for the current, depreciated value of your roof. With an RCV policy, you’ll receive enough money to fund the repair or replacement of a comparable roof to your current one.

A brick home that has had a roof replacement

Here’s an Example of Actual Cash Value Vs. Replacement Cost Value

Let’s look at an example to highlight the core difference between ACV vs. RCV insurance for your roof.

Imagine that you have a roof worth $30,000 that’s expected to last 10 years. It’s seven years old with a 5% depreciation rate, meaning depreciation is now 35%. The roof, if appraised by a claims adjuster, will only be worth $19,500 due to depreciation.

If a tree falls on your roof, necessitating a roof replacement, your insurance policy kicks in. If you have an ACV policy, you’ll only have to pay a $2,000 deductible. But the insurance company will only pay you $17,500. As a result, if you want to replace your roof with a comparable one worth about the same amount of money, you’ll need to pay over $10,000 more to fund that project.

If you have an RCV policy, you may have to pay a $4,000 deductible. But once that’s done, the insurance company will fund the rest of the roof replacement, paying you $26,000 to cover the cost of installing an identical or similar roof.

Which Should You Choose: Actual Cash Value or Replacement Cost Value Roof Insurance?

While RCV insurance policies may seem unattractive at first glance, they can be advantageous. If you can stomach the higher deductible, that deductible might be the only out-of-pocket expense you have to pay to replace your roof after a storm or some other disaster. That’s because RCV coverage pays you enough money to replace your roof with a comparable or similar roof, not just what your roof is currently worth.

In contrast, ACV coverage is more affordable initially. Since ACV coverage imposes a lower deductible requirement before paying out, you may very well see savings through an ACV policy.

But your insurance payout may also not be enough to fund repairing or replacing your roof in full. That means you’ll have to pay more out-of-pocket expenses after your deductible if you want a new roof over your head! In this situation, RCV coverage would yield more overall savings to your bank account.

A Stonewater Roofing sign in front of a home with a roof replacement

Contact Stonewater Roofing Today

Understanding the full value of your roof — and what you’ll likely pay out-of-pocket if it’s ever damaged — is an important part of being a responsible homeowner. With Stonewater Roofing, you can get your roof appraised and examined by licensed, fully trained roofing professionals throughout Texas. We’ll work with your insurance company and your desires as a homeowner to ensure your roof repairs go smoothly no matter what. Contact us today!