Roofs are an integral part of your home; they keep you and your belongings shielded from weather and help protect the structure of your home from damage. They also tend to be quite expensive. Thankfully, homeowners insurance usually includes coverage for the roof, but how extensive that coverage is can vary significantly between policies. When filing a claim for a damaged roof, how much you receive will partly be based on whether your roof coverage is for actual cost value (ACV), replacement cost value (RCV) or guaranteed replacement cost value. Understanding the differences between these coverage levels is critical to knowing how much you might have to pay out of pocket when using home insurance to replace your roof.
Homeowners insurance policies generally provide coverage for your roof under the dwelling coverage portion of your policy. Dwelling insurance pays to repair or replace the structure of your home after covered damage, but there are several different ways your roof might be covered. There are also situations where your roof may not be covered at all. If your roof is in poor condition due to lack of maintenance or wear and tear, for example, or if it is over a certain number of years old, your insurance company may exclude coverage for roof damage. How old a roof can be to qualify for coverage can vary between insurance companies and circumstances.
Actual cash value or ACV roof coverage means that your insurance company agrees to pay you for the value of your roof at its depreciated value (prior to the damage). Depreciation is calculated by a claims adjuster, who will inspect the roof to determine its replacement cost, review its current condition and estimate its remaining lifespan.
For example, if the replacement cost — not the amount that you paid for it originally, but the amount it would cost to replace it today — for your roof is $20,000, but the roof loses 5 percent of its value each year (called depreciation), your roof would be worth $10,000 after 10 years. If you have ACV roof coverage, that is most likely the amount you would receive if you filed a claim, minus your deductible. Any costs over and above $10,000 would have to be paid on your own. There could also be additional depreciation taken out based on the condition of your roof. Some 10-year-old roofs might be in great condition, while others could have sustained damage or wear. In short, actual cash value roof insurance is designed to pay you the value of your roof based on the condition it was in just before sustaining whatever damage caused you to file a claim, and not the value of your roof when it was new. Some home insurers include an ACV depreciation schedule with the policy that shows what the replacement value is by year.
There is a connection between the age of your roof and your insurance coverage. ACV roof coverage is typically used for older roofs or roofs that are in poor condition, but some insurers only offer ACV coverage for roofs, regardless of age. Which coverage type is offered will vary by state regulations. It is typically a less expensive way to cover your roof. Some insurance policies may give you the option to choose between ACV or replacement cost value (RCV), but if your roof is past a certain age (generally 15 to 20 years old), your insurer may automatically stipulate that you have roof actual cash value coverage. Some states do not allow insurers to use ACV to assess roof replacement coverage. For that reason, checking local regulations when deciding on your roof insurance coverage can be a good idea.
Replacement cost value coverage is a bit simpler to understand than actual cash value for roofs. If you have a homeowners policy that covers your roof on a replacement cost basis, the insurance company is agreeing to pay you what it would cost to replace your roof with a comparable new roof without factoring the roof’s age or prior condition. Your claims adjuster will base their assessment on new roofing materials (as well as labor costs) that are comparable to what you currently have and offer you a settlement for what it would cost to replace your roof with these materials.
RCV generally costs more than ACV coverage, but it typically means that your homeowners insurance deductible would be your only out-of-pocket expense if your roof is damaged. Because the payouts on RCV coverage tend to be higher than on ACV, the premiums are usually higher for this type of coverage. If your roof is newer or in good condition, you may be able to insure it with replacement cost. Some companies will automatically assign RCV to your roof based on its age, or you may be able to choose between ACV and RCV.
There are several factors to consider when deciding how to insure your roof. First, what options is your insurance company giving you? Based on the age of your home and your roof’s condition, your insurer may automatically assign a certain coverage type to your roof, taking the decision out of your hands. For example, an insurance company is not likely to cover a 40-year-old roof on a replacement cost basis, since the roof is probably in poor condition and may be more susceptible to damage. In hurricane-prone, tornado-prone and hail-prone states, property insurers may have stricter underwriting standards for roofs.
If you’re given the choice between ACV vs. RCV for your roof, you will need to consider several aspects of your financial situation to determine coverage. Some of the key pros and cons of ACV coverage include:
Usually yields a lower premium
May be a more affordable option overall if your roof is fairly new
Usually yields higher out-of-pocket costs after a covered loss
Depreciation calculation may vary by insurance carrier
RCV offers more robust coverage, but it might not be the right choice for every homeowner. Below are some key perks and drawbacks of RCV roof coverage:
Likely to reduce your out-of-pocket costs after a covered loss, especially if your roof is older
Accounts for real cost factors like inflation and supply chain surcharges
Typically more expensive than ACV
May not be available if you have an older roof