Check Your Homeowner’s Insurance Policy Before The Next Major Hail Storm
Do you know what your homeowner’s insurance policy covers in the event of a hail storm? Major wind and hail storms seem to hit every year now. We talked about deductibles in 7 Things to Know About Your Homeowner’s Insurance, but I think we need to go a little deeper. I have been doing some Financial Consulting for a couple of different roofing companies, and I have learned a lot! Let’s take another look at deductibles, replacement cost policies, and actual cash value policies.
A common deductible is $1,000, but this has been changing. Several insurance companies have moved to 1% of the dwelling coverage for the deductible. This means if you have $300,000 in dwelling coverage your deductible will be $3,000. Yikes!!!
I was recently sitting with my friend’s Mom after some 2.5” hail pummeled her home. She pulled the Declarations Page for her homeowner’s insurance out to show me some fine print! Her policy said she had a $1,000 deductible*. The “*” dropped down to a note that read 1% of the dwelling coverage for wind and hail.
Insurance companies figured out you are more likely to have hail damage than lose your home to a fire. Therefore, they have transferred risk back to the people they are insuring by increasing their deductible for hail.
Replacement Cost Policies
A replacement cost homeowner’s insurance policy offers the most protection for you. This type of policy insures you will receive a new roof if it is damaged by hail or wind.
With that said, if your roof is 50 years old it is doubtful that an insurance company will cover you. This is why insurance agents typically drive by your home before taking you on as a client.
Shingle manufactures claim the typical roof is good for 30 years to 50 years depending on the product. My friend with 18 years of roofing experience would argue, few roofs ever make it close to 30 years.
I was recently inspecting a roof that was 18 years old, and the shingles were showing significant wear. When the adjuster climbed on the roof the first thing he said was, “Wow, this roof is close to the end of its life!”
Ultimately, the adjuster found plenty of new damage, and he recommended having the roof replaced. My friend had good insurance which has mitigated his risk!
Actual Cash Value Policies
An actual cash value homeowner’s insurance policy offers the least protection for you. This type of policy insures you will receive only the actual cash value of the roof. Let me illustrate what that means.
If the typical roof has a life expectancy of 30 years and it is damaged by hail two years after it was installed, you will get most of your roof paid for. You will pay for your deductible plus a small percentage. However, if your roof is 15 years old the insurance company is going to depreciate your roof by 50%. This means you will be paying your deductible plus half the cost of the new roof.
Let me illustrate this point a different way. The insurance company is saying, “Hey, we are not buying you a brand new car if you get in an accident, but we will buy you a used car with 60,000 miles.”
I was sitting with a Landlord while he called his insurance company to check out the details of his policy. When the insurance company told him the policy was an actual cash value, I could see his heart sink. He realized he was going to be paying over $6k to replace the roof on his rental property.
Final Thoughts on Checking Your Homeowner’s Insurance Policy
Deductibles, replacement cost policies, and actual cash value policies are all important aspects of your homeowner’s insurance policy. Insurance companies have been working to transfer risk back to homeowner’s buy increasing deductibles. Replacement cost policies offer the best protection because they pay for a new roof. The only exception to that is if the roof is worn out. Actual cash value policies can transfer a lot of risk to you.