New Rules for Roof Insurance: What Homeowners Need to Know in 2025
In recent years, homeowners have faced significant changes in how insurance companies handle roof claims particularly concerning wind and hail damage claims. Many insurers are transitioning from offering Replacement Cost Value (RCV) to Actual Cash Value (ACV) settlements for roofs older than ten years when they are damaged by wind or hail. This shift has substantial implications for homeowners, affecting claim payouts and out-of-pocket expenses for the homeowner.
Understanding Replacement Cost Value (RCV) vs. Actual Cash Value (ACV)
Replacement Cost Value (RCV): This coverage reimburses homeowners for the full cost of repairing or replacing damaged property without accounting for depreciation. For instance, if a roof is damaged, RCV covers the expense of installing a new, similar-quality roof, regardless of the old roof's age or condition.
Actual Cash Value (ACV): In contrast, ACV coverage factors in depreciation. It pays the current market value of the damaged property at the time of the loss. Therefore, if a roof is damaged, ACV provides compensation equivalent to the roof's depreciated value, which can be significantly less than the replacement cost.
Why Are Insurers Making This Change?
Several factors have prompted insurance companies to adjust their roof coverage policies:
Increased Frequency of Severe Weather Events: In recent years we have see a rise in the Midwest of hailstorms and wind events, resulting in more frequent and severe roof damage claims. Parts of the Midwest (Illinois, Indiana and Ohio) have seen $73 billion in weather related claims in the past 3 years.
Escalating Repair Costs: The surge in claims has led to higher repair and replacement expenses. In densely populated areas, like Hamilton County, repair costs surge following major wind or hail events due to increased demand for contractors and materials, driving prices even higher. Higher demand = Higher Price
Mitigating Financial Risk: By shifting to ACV policies for older roofs, insurers aim to reduce their financial exposure. Older roofs are more susceptible to damage, and covering them at full replacement cost can be financially burdensome for insurance companies. Insurance aims to restore, not enhance, a policyholder's financial position after a loss. Covering full replacement costs for aging roofs benefits homeowners but exceeds insurance's intended purpose.
Implications for Homeowners
The transition from RCV to ACV coverage means homeowners with older roofs may receive lower claim payouts, as depreciation significantly reduces the compensation amount. For example, a 20-year-old roof with a replacement cost of $10,000 might have a depreciated value of $4,000. Under an ACV policy with a $1,000 deductible, the insurance payout would be $3,000.
What Can Homeowners Do?
Review Your Policy: Understand whether your current policy provides RCV or ACV coverage for your roof. Policies with ACV coverage often have lower premiums but may result in higher out-of-pocket costs after a claim.
Consider Roof Maintenance and Upgrades: Regular maintenance can extend your roof's lifespan. If your roof is approaching the age threshold where ACV applies, consider investing in a replacement to maintain RCV coverage.
Discuss Options with Your Insurer: Some insurance companies offer endorsements or additional coverage options that can provide better protection for older roofs. Engage with your insurance agent to explore available choices that align with your needs and budget.
The best way to protect yourself and your investment is to speak with an insurance professional. If you have questions about your homeowners insurance and how your roof is covered, reach out to Bragg Insurance Agency today. We’ll make sure you understand your coverage, so you can rest easy with peace of mind. 📞 Call or Text us today at 317-758-5828 to discuss your options! You can also email us at info@bragginsurance.com
