INITIATING AN INSURANCE CLAIM
When you call the insurance company to initiate your claim we strongly recommend that you call your insurance company’s claim department directly, not your insurance agent. You will find a list of all the major insurance company’s and their toll free claim lines among these resources. The claim department is there for a reason, the insurance company has systems in place to help expedite claims and they start with trained representatives in the claims department. Along with the report and photos, a brief outline of what to say to the person on the claims desk when you call will be uploaded onto your dashboard in the JCRT system. You will want to have your policy number and member number, if applicable at hand when you call. The claims processor will ask what type of damage or the cause of the damage. If it is hail then just tell them hail, if it is just wind then just tell them wind. There are some instances when the damage was caused by a combination of hail and wind and if that is the case then tell them that it is damage from hail and wind. We don’t want you to incur two claims; one from hail that happened last week and possibly one from wind that happened a few months ago. If there are two claims there will be two deductibles and that’s not what you want.
Surprisingly, many insurance agents do not know much about the claims process. Some will suggest that you get several bids for the work you anticipate having done. This is not a requirement of any insurance company and it is a waste of everyone’s time. Most roofing contractors will agree to do the work for what the insurance company ultimately agrees to pay to put the roof, gutters and other parts of the property back into the condition it was prior to the even that caused the damage.
INITIATING AN INSURANCE CLAIM FOR HAIL DAMAGE OR WIND DAMAGE REPAIR OR ROOF REPLACEMENT
- For the best service and fastest response from your insurance company call their customer service claim line.
- Explain that the roof has been inspected by your roofing contractor, The Jack Caton Team at 1st Priority Roofing and that sufficient damage was found to warrant initiating a claim.
- They will ask when the damage occurred? If you do not know for sure ask us or tell the claims representative that it was only discovered when the roof was inspected recently. They may ask what was damaged? The roof for sure but there may be some damage to the siding, paint and possibly the gutters and downspouts. They may set a date and time for an adjuster’s inspection right then or the adjuster may call you later to arrange the it. It is important to get the adjusters information: Name, Phone #, Time, and Date of adjuster’s meeting.
- Magic words you need to mention: “I want my Contractor, The Jack Caton Roofing Team to be present at the adjuster’s inspection.” Reason for us to be there: You want to have representation for you as the home owner. We’ll get on the roof with the adjuster to make sure he or she is aware of all the damage as well as walk the property with them making certain that all the storm damage is noted. It is our experience that a homeowner gets a more complete claim when we are there at the time of the adjuster’s inspection. They will have to stick to the time they said they will be there. They can’t change the time unless they contact the contractor first.
- Call Amy at The Jack Caton Roofing Team with adjuster’s meeting info (719) 338-1441 or enter it into the convenient JCRT Online System.
- We will meet the adjuster and make sure that a thorough inspection is completed of the roof as well as the other components of the house that may have been damaged in the storm. When the adjuster’s inspection has been completed we will contact you regarding his or her findings as will the adjuster.
ADJUSTER’S INSPECTION COMPLETED
As a Colorado Springs roofing contractor, we specialize in inspecting, repairing and replacing roofs. We also do gutters. A hail storm can do damage to considerably more than the roof or gutters. The insurance adjuster has an obligation to inspect every part of the house that may have been damaged by the hail. In addition to the roof, this includes window, screen, doors, decks, stairs and railings, fences, siding and more. When we are in attendance during the adjuster’s inspection we will make sure he or she is thorough and fair in their assessment of the damage. It has been our experience that a homeowner will get better service and quality if they hire contractors who specialize in painting, window repair and replacement, and so on than they will if they depend on a roofing company to sub-contract that work. We will be happy to recommend contractors we feel are dependable and honest.
If you are present at the time of the adjuster’s inspection, the adjuster will go over what he or she has found in the way of damage with you. This includes damage to the dwelling both interior and exterior and any personal property such as the patio furniture and bar-b-q grill and so on. If you feel the adjuster hasn’t been fair or thoroughly inclusive, you can discuss the differences and try to find common ground. If an agreement can’t be reached you do have the right to a re-inspection by another adjuster.
In many cases the adjuster will have a mobile office in their vehicle and be able to print out the insurance claim estimate right then and there as well as print the first check and give it to the homeowner. Other adjusters do not have this option and must submit their report to the insurance company which in turn will prepare the insurance claim estimate and the first check. While it isn’t possible to email a check, emailing the claim estimate is easy and much more expeditious than snail mail. Ask that the adjuster email a copy of the claim estimate to you even if he or she prints the claim estimate for you, so you can forward a copy to us for review.
Of course, if you cannot be present for the adjuster’s inspection it’s smart to have us be there in your stead to watch out for your best interests. We are your total roofing partner.
ROOFING CONTRACTOR’S REVIEW OF THE CLAIM ESTIMATE
As I pointed out earlier in Contracting for the Work, there is no upside to shopping roofing companies based on price. Make your roofing contractor decision based on reputation, quality, service and communications. All roofing contractors will do the work for what the insurance company ultimately agrees to pay but all roofing companies are not alike. What’s important is the quality of the work, the level of service and the timeliness of the contractor’s communications. It is important that you share the insurance claim estimate with your contractor so that they know if the insurance adjuster has included everything that should be included and has been fair and just and allowed an adequate amount of money for each component of the job. Most insurance companies and roofing contractors use a costing system called Xactimate which is updated on a regular basis by region so that there is less contention between contractors and insurance companies about what various services should cost and what specific materials should cost. Both sides of the industry have found it to be a useful and timesaving tool.
In the Colorado Springs area, we continue to find homes that still have three-tab and T-Lock shingles on their roofs. T-Locks are no longer manufactured, and three-tab is old technology that doesn’t hold up well in the wind. When we replace these types of shingles The Jack Caton Roofing Team at 1st Priority Roofing automatically upgrades the customer to an Architectural Dimensional shingle at no additional cost even though the insurance company may only pay the amount normally allowed for these less expensive and inferior shingles.
If we find that everything is in order we will contact you with our findings, answer your questions and address any concerns you may have. If we find issues with the claim estimate we will contact the adjuster, discuss our concerns and attempt to reach a satisfactory resolution. In many instances if there is a discrepancy it is simply a matter of the adjuster having entered the wrong code for the work and the fix is easy. Occasionally an adjuster may be from another area or state and not familiar with certain of our building regulations and code requirements. Adjusters understand that their obligation and the obligation of the insurance company is to put the property back in the condition it was in prior to the event that caused the damage. For the most part, they prefer to err on the side of the policy holder because they want to keep the policy holder as a customer.
If you have already had your roof inspected by your insurance company and have a claim you would like us to review or explain to you, we will be happy to do so with no cost or obligation. You can reach us by calling 719-338-1441 or going to www.jackctonroofing .com
For the most part adjusters are fair and even handed in assessing your claim. Some are third-party adjusters meaning that they do not work directly for the insurance company. In many cases these adjusters are paid a percentage of the total claim. This arrangement motivates the adjusters to be thorough and fair in their inspection. Just because they are paid a percentage of the claim doesn’t mean that they will agree to pay for a roof or other property that doesn’t have adequate storm damage to warrant being replaced on the insurance company’s dime. Occasionally an adjuster will decline paying for a roof that we sincerely believe has sufficient damage to warrant replacement. If that is the case and with your assistance we will ask the insurance company for a second inspection and in some rare cases a third inspection by an outside expert. As a professional roofing contractor, we feel it is our obligation to see to it that you receive fair treatment from your insurance company.
There are instances when a roof inspection by us and then subsequently by an insurance adjuster will reveal that the damage that we see isn’t hail damage but damage that was caused by some sort of manufacturing error. As a trained roofing contractor, we have found manufacturer’s defects on numerous occasions and have been successful in getting the manufacturer to pick up the bill not only for new shingles but for the labor as well. In one recent situation like this we managed to detect the issue, reach out to the manufacturer, have them inspect the roof and provide them with samples of the defective shingles, get their approval and install a new roof in just over two weeks. Normally this process takes a month or more. The savings to the homeowner was huge and the new homeowner got a very nice new roof because of our diligence and willingness to go the extra mile.
SETTING UP THE ADJUSTERS INSPECTION
As a part of our service as an elite roofing contractor, we like to be present when the insurance adjuster does his or her inspection. This accomplishes two things. First, the adjuster is more likely to be on time or close to on time for the appointment if he or she knows a roofing contractor will be waiting for them at a specific time. Second, we are there as your advocate, to make sure your best interests are seen to. We do this daily and know what to look for. It is in your best interest to have a qualified roofing contractor represent you during the inspection. The adjuster is likely to be much more thorough if we are there to make sure that he or she strives to find all the damage that occurred because of the covered hazard. It is important that you tell the claim representative that you want you contractor (The Jack Caton Roofing Team) present when the adjuster does his or her inspection.
In most instances, the time and date of appointment for the adjuster’s inspection isn’t set when you speak with the claims representative. The claims representative will enter all the pertinent information into their computer and tell you that an adjuster will be in touch with you in the next day or so. If possible, please try to get the name and phone number of the adjuster at that point. This is especially important if the appointment time and date are set right then and there. Something may come up. You may need to change the date or time of the inspection, so you really need the name and the phone number of the adjuster. If we are meeting the adjuster on your behalf, we need the adjuster’s name and number in case they are a no show, or something comes up preventing us from being on time.
If the specific date and time for the adjuster’s meeting was not set by the claims representative, then the adjuster will call you to set up the time and date. Once again it is important to tell them that you want your roofing contractor present when he or she does the inspection and to get the name and cell phone number of the adjuster. Adjusters will often offer to call when they are a half-hour or forty minutes out from reaching your property. You are welcome to give them our phone number, so they can let us know. This saves everyone precious time.
THE ADJUSTER’S INSPECTION
Adjusters have an inspection protocol they try to follow. Most will first inspect the entire exterior of the property from the ground looking for storm related damage. The inspection will include looking at the windows and doors including the garage door and trim around the garage door opening, the siding, screens, downspouts and gutters, fence and gates, decks and railings. Hail or wind may have damaged the patio furniture, Bar-B-Q grill and cover, solar yard lights and other yard ornaments and the adjuster should make note of all of it.
Upon completing the inspection of the exterior, the adjuster will inspect the roof. For damage caused by the hazard. If The Jack Caton Team has inspected the roof prior to the adjuster’s inspection, we are generally confident that the adjuster will concur with our assessment of the damage. We have a good reputation with insurance adjusters because, unlike some roofing contractors we don’t call them out unless we know that there is damage to a roof that warrants coverage, In addition to the shingles, the adjuster should also make note of any damage to the roof vents, pipe jacks, drip edge and other soft metal, any skylights and their flashing and cladding.
Some adjusters welcome the presence of a roofing contractor to help find all the storm related damage and others feel that we are somehow infringing on their territory or there to try to get them to pay for a roof that doesn’t need to be replaced or repaired. Our sole objective is to make sure that nothing is overlooked. Just a quick note here; if a home in the Pikes Peak region is over 7,000 feet in elevation it is a requirement of Pikes Peak Regional Building Department, that roofing contractors install Ice and Water Shield from the edge of the roof to twenty-four inches above or inside the interior side of the exterior walls. For example, if a home has a twelve-inch soffit with a six-inch exterior wall we will have to install forty-two inches of ice and water shield all around the heated portion of the home. Ice and water shield is installed to prevent ice damming. Ice and water shield is required in most of the areas in the greater Denver area.
INVOICING THE INSURANCE COMPANY
We take care of submitting the invoice for the work we have done to the insurance in the format that the insurance companies prefer. The homeowner does not have to worry about doing this themselves. The advantage is that when there are supplements such as the fee for the building permit or for the starter course or for Overhead and Profit all the necessary substantiating documentation is included with the invoice we have submitted on behalf of the homeowner. Any question that the insurance company may have are directed to us rather than the homeowner. We do this several times each week and know what information the insurance company needs or wants. If the insurance company has issues with the invoice they discuss them with us until they are satisfactorily resolved. When our invoice includes substantial supplements that were not included in the original claim estimate, the insurance company should issue a revised claim estimate and get a copy to the homeowner. They should also send us a copy but often do not. If you receive a revised claim estimate we ask that you forward it along to us or upload it into your job folder on the dashboard of the JCRT system so we know that their revisions are in line with our invoice and what they have agreed to.
ROOFING CONTRACTOR INVOICES THE INSURANCE COMPANY
A big benefit of engaging a professional roofing contractor is their experience and knowledge of what to do and when to do it. Remember, the original insurance claim is an estimate, and in most instances does not reflect the final amount the insurance company will be invoiced for the wind or hail damage repair cost. Upon completion of the work our insurance department prepares an invoice that is submitted to the insurance company for payment. This invoice is submitted in the exact format preferred by the insurance company makeing it easy for them to discern any differences between the original claim estimate and the final invoiced amount.
We cannot emphasize enough that the original claim is an estimate and not the final amount the insurance company will pay. There can be differences of several thousand dollars between the original claim estimate and the amount the insurance company finally agrees to pay. This happens with all roofing companies in Colorado Springs. When there are differences between the original claim estimate and the amount finally approved by the insurance company, the insurance company is supposed to revise the claim estimate and forward a copy of it to you and to us. Sometimes this does not occur, and the homeowner will receive a check considerably larger than was originally estimated. Please understand that this is not a bonus for you. It is payment from the insurance company for work we have performed and for which they have approved.
Once the insurance company has approved the final invoice we submitted to them and have approved payment to the homeowner we will issue an invoice to the homeowner. The invoice will reflect the total amount charged for the work we have done, any payments that have been made and credited toward the total amount, any credits that have been extended and the balance due on the account. Our invoice does not breakdown every item. These charges have been itemized on the insurance claim estimate and on the invoice that we have submitted to the insurance company, all of which are available for review on the JCRT Online System. We have found that any further itemization will only serve to confuse an already somewhat confusing and complex experience. The invoice will be uploaded into JCRT Online System as well as emailed to the homeowner. Of course, if the homeowner does not have email or internet we still know how to use the United States Postal Service.
Along with the invoice you will also receive a Certificate of Completion and a Lien Waive Affidavit releasing the home owner and the property from any mechanics liens upon payment of the balance due in full. It is smart to keep this paperwork in case there are any questions as to what material was used and the color of the shingles. If you have any questions, please feel free to contact us at www.jackcatonroofing.com or call us at 719-338-1441.
5-THINGS YOU NEED TO UNDERSTAND ABOUT YOUR INSURANCE CLAIM AFTER A HAIL STORM
Insurance claim estimates are written in an odd kind of English. Insurance companies aren’t purposely trying to confuse you, but they don’t seem to be going out of their way to help you to understand the claim estimate either. Here are explanations of five terms that will help you make sense out of your claim estimate.
A typical Colorado Springs area insurance claim scenario may look like this:
The insurance adjuster estimates that the total cost to replace your damaged roof, The Replacement Cost Value (RCV) is $9,000.
Your Deductible is $1,000.
The adjuster determines that because of age and regular wear and tear, the current roof had depreciated by 40% of its Replacement Cost Value (RCV) or $3,600. (9,000 x .40 = 3,600)
The insurance company will hold back the $3,600 of Depreciation until the work on the roof is completed and they receive an invoice for the work. This is called Recoverable Depreciation.
The amount of the Depreciation, $3,600 is subtracted from the $9,000 Replacement Cost Value (RCV) giving us a remainder of $5,400 which is referred to as the Actual Cash Value (ACV).
From the Actual Cash Value (ACV) of $5,400 the insurance company subtracts your Deductible of $1,000 leaving a remainder of $4,400 which is the called the Net Claim and is the amount of the First Check they will issue to you.
- Description: Sounds simple enough doesn’t it? Let’s see. Remove, tear off and haul away. Piece of cake. It means just that. It is what the insurance company will pay to remove the existing shingles from the roof, tear off the underlayment and haul the old material away. With some insurance companies this includes the trailer or dumpster used to haul away the material with others it does not
- Material Only: Some insurance companies will pay for the material separate from what they pay for the labor to install it, some put the material and the labor together.
UNDERSTANDING YOUR INSURANCE CLAIM ESTIMATE FOR HAIL DAMAGE REPAIR COSTS
The roof of your property was substantially damaged by a hazard that is covered by your homeowner’s insurance such as hail or wind. You initiate a claim (see Calling in a Claim) and after a claim adjuster has inspected your roof the insurance company agrees to pay the hail or wind damage repair costs.
- The insurance company either sends or gives or emails you a lengthy document that they refer to as Claim Estimate. If you are not an insurance expert or a roofing contractor, the claim estimate may be difficult to understand. It is called an estimate because it is exactly that and may change considerably before everything is final and the work has been completed.
- If you have a Full Replacement Value coverage, the insurance company will pay the cost of replacing your roof with like material. The Replacement Cost Value (RCV) less your deductible. Insurance companies generally will not pay the full RCV until they receive notification documenting that the work has been completed.
- Costs to do the work are not normally negotiated between the roofing companies and the insurance carrier. They determined by information shared by roofing contractors in the Springs area and insurance companies based on average costs of materials and labor in specific areas.
- It is unnecessary to get bids from various roofing companies to do the required work. A quality roofing contractor will generally agree to do the work for the final agreed to amount of the claim estimate plus your deductible. If a roofing contractor is willing to do the work for less than the deductible they must submit an invoice to the insurance company for that lesser amount and that is all the insurance company will pay. Please note that according to Colorado Senate Bill 38, it is illegal for a roofing contractor to pay or waive any portion of the homeowner’s deductible.
- Based on the age of your roof, the insurance adjuster will calculate the percentage of the full replacement value by which your roof has depreciated. This percentage determines the amount of money to be withheld until from the claim amount until the roof is replaced. The amount they have withheld is referred to as the Recoverable Depreciation.
- From the Replacement Cash Value (RCV) the insurance company subtracts the amount they calculated for depreciation to determine the Actual Cash Value (ACV). From the ACV the insurance company will then subtract your deductible to and issues what is often referred to as the First Check.
Let’s say that the Replacement Cost Value (RCV) of your roof is $9,000, you have a $1,000 deductible. The adjuster determined the roof is depreciated by 30%, or $2,700 (9,000 x .30 = 2700). The insurance company will withhold $2,700 until the work on the roof is completed and they receive an invoice for the work. The amount of the Depreciation, $2,700 is subtracted from the $9,000 RCV giving us a remainder of $6,300 which is the Actual Cash Value (ACV). From the ACV of $6,300 the insurance company subtracts your deductible of $1,000 leaving a remainder of $5,300 which is the Net Claim and the amount of the First Check they will issue to you.
- In many cases the check the homeowner receives includes their mortgage company as a payee. The mortgage company has a vested interest in the property and want to protect by it making certain the damage to the property is repaired. Some mortgage companies will simply endorse the check and send it back to you, others may hold the check and dole out the money to the contractor as they receive invoices. Please make sure to carefully examine the first check you receive from your insurance company to see if your mortgage company is included as a payee. If it is, give them a call and find out the fastest, easiest way to get the endorsement of the mortgage company on the check.
- When the roof work has been completed and the insurance company receives an invoice for the work, they will issue a check for the recoverable depreciation plus any supplements and the fees required for permits. As mentioned earlier, it is not unusual for the original claim estimate to change. Circumstances such as a mis-calculation of the total squares to replace a roof, not having included the allowance for a steep or high roof, a manufacturer’s requirement to include a starter course and dozens of other issues may cause the claim estimate to be increased after discussions between the roofing company and the inside insurance claims adjuster. Roofing Contractors are obligated to let the homeowner know the Estimated Total Cost but once again it is an estimate and may change. What doesn’t change is the agreement on the part of the roofing contractor to do the work for the Final Amount Approved by your insurance company plus your deductible.
- What if you can find a contractor who is willing to do the work in the above example for only $7,000? The insurance claim estimate is in the amount of $9,000. You have a deductible of $1,000. Could you collect the $9,000 less the deductible or $8,000, pay the contractor $7,000 and pocket the $1,000 difference? In Colorado it is illegal for a homeowner to profit from an insurance claim in this manner. If a contractor is willing to do the work for $7,000 they can only submit an invoice to an insurance company for the $7,000. To do otherwise constitutes insurance fraud. There are legal ways to mitigate the impact of your deductible and dramatically reduce your out of pocket expenses. We’ll be happy to show you how.
We provide premier roofing services and specialize in working with and negotiating with insurance companies to make sure that you get everything to which you are entitled. Our goal is to make sure your property is put back in the same or better condition it was in before it was damaged. When you hire us to do your roof work we deal with the hassle of working with the insurance company. When the final invoice to the insurance company has been approved, the insurance company doesn’t issue the Final Check directly to the contractor. Checks are issued to the homeowner and it is their obligation to pay the contractor.
Repairing damage to your home that was caused by a storm of some sort is an expensive inconvenience. The insurance process can be confusing and a bit overwhelming, especially if your claim includes other items such as siding, screens, gutters, decks, garage doors, fencing and so on. We specialize in roofs and gutters but can help you understand the whole process and point you in the right direction for the other services you may need. Please feel free to contract us with any questions about your insurance claim.
Contact us if you are having difficulty understanding your insurance claim estimate. You can call 719-338-1441 or go to www.jackcatonroofing.com and click on contact us. We’ll be happy to sit down and help you understand your claim completely.
INSURANCE COMPANY PAYMENT
Insurance companies are very good about paying their claims, especially for roof and gutters but they do not pay roofing companies directly. A roofing contractor submits an invoice to the insurance company for their approval. When it is approved they remit the payment to the property owner or policy holder. We upload the insurance invoice we have submitted to the insurance company into the homeowner’s Dashboard in the JCRT Online System for their review. It isn’t unusual for the finally agreed upon invoice to differ substantially from the original claim estimate. It is called an estimate because it is just that.
We have a responsibility to maintain the integrity of the roof installation by following the manufacturer’s mandates. This will often result in an increase from the original estimate prepared by the adjuster. Another example is ice and water cover that is mandated by the El Paso Regional Building Department for homes at elevations above 7,000 feet and Drip Edge for the eaves and rakes which was just recently made mandatory for roofs installed under the auspices of The Pikes Peak Regional Building Department. Many adjusters are not aware of these building code requirements and don’t include them on the original claim estimates. Another supplement is the Overhead and Profit discussed in these resource pages. This alone could easily take a $9,000 claim and increase it to $10,800.
When there is a significant change from the original claim estimate, the insurance company should send both the roofing company and the property owner a revised claim estimate that agrees with the final invoice approved by them. They will often agree to pay the revised amount, send the revised estimate to the property owner and neglect to tell the roofing company that they have done so. Roofing companies don’t want to ask for payment for something that hasn’t been approved but at the same time they do expect to be paid for what has been approved. We will occasionally ask a property owner to provide us with a copy of the revised estimate.
If we ask for supplements that are not approved by the insurance company and they are not approved, we do not expect the homeowner to pay for them unless they have been discussed and approved by the homeowner in advance. There are situations in which an insurance policy may not cover upgrades required by code. These may include installing new solid decking over the space decking in an older home. Space decking was discussed earlier, and we wouldn’t think of getting to that point unless and until the installation of the decking and the cost has been discussed with and approved by the property owner. Installing Modified Bitumen on a flat or nearly flat roof may be another instance where it is a code upgrade if we are replacing old rolled roofing. Once again, we would be certain to discuss this long before continuing.
Insurance companies try to stay away from a relationship with roofing contractors. The insurance company has a contract (policy) with the property owner not with the roofing company. The homeowner has a contract with the roofing contractor. The insurance company pays the property owner and the property owner pays the roofing company.
ROOFING COMPANY INVOICES THE HOMEOWNER
Once the insurance company has approved the final invoice submitted to them, the roofing contractor will issue an invoice to the homeowner. The invoice will reflect the total amount charged for the work that has been done, any payments that have been made and credited toward the total amount, any credits that have been extended and the balance due on the account.
Our invoice does not breakdown every item. These charges have been itemized on the insurance claim estimate and on the invoice that was submitted to the insurance company. Your insurance company has an obligation to provide you with a revised insurance claim estimate itemizing everything to which they have agreed to pay. We have found that any further itemization will only serve to confuse an already somewhat confusing and complex experience. Our invoice will be uploaded into the JCRT Online System as well as emailed to the homeowner. Of course, if the homeowner does not have email or internet we still know how to use the United States Postal Service.
Along with the invoice you will also receive a Certificate of Completion and a Lien Waive Affidavit releasing the home owner and the property from any mechanics liens upon payment of the balance due in full. It is smart to keep this paperwork in case there are any questions as to what material was used and the color of the shingles. Recently we started sending out a self-adhesive label with the pertinent information regarding the roof printed on it that we suggest property owner’s affix to their garage wall near the interior light so that it can be easily referenced by current and future owners of the property.
DIFFERENCES IN INSURANCE COVERAGE TO PAY FOR WIND OR HAIL DAMAGE REPAIR COSTS
The wrong time to find out your insurance coverage isn’t what you thought it was is after a damaging storm when you are counting on the insurance proceeds to make any necessary repairs. The past few years in the Pikes Peak region have been very costly for insurance carriers. We have had several widespread and damaging hail storms and two major fires. Rates have gone up and so have deductibles. Many insurance policies today have deductibles of 1% and 2% and in some instances 5%. This doesn’t seem so bad until one realizes that it is 1 or 2 or 5 percent of the replacement value of the insured property as it appears on the declaration page of the insurance policy. If a homeowner has a 1% deductible and the declared replacement value of the house is $500,000 then the deductible is $5,000 while a 2% deductible would be a $10,000.
The preferred type of insurance for a residence for the average homeowner, in our opinion is a Full Replacement Value policy with a $1,000 – $2,000 deductible depending on your financial comfort level. Let’s say the cost to replace a roof (Replacement Cost Value) is $8,000 and the homeowner has a $2,000 deductible. The roofing material is an Architectural Dimensional 30-year asphalt shingle that is 10-years old. The insurance adjuster will likely depreciate the roof 33%, because one third of its 30-year anticipate economic life has elapsed. With a Full Replacement Value Policy, the depreciation is considered recoverable which means that the insurance company will hold back the depreciation amount until the roof has been replaced. In this instance $2,400 would be held back until the roof has been replaced. The replacement value is $8,000, The depreciation is $2,400 and the deductible is $2,000. The home owner will receive an initial check in the amount of $3,800. When the roof has been replaced and an invoice is submitted to the insurance company for the $8,000 they will pay the homeowner the $2,400 depreciation that they originally held back. In addition to the insurance proceeds, the homeowner pays the roofing contractor the $2,000 deductible.
Many years ago, insurance companies would pay the entire amount of the claim up front after the adjuster completed the claim estimate. They found that many people would simply spend the money and not replace the roof. Later, after another hail or wind storm the homeowner would call and initiate a claim expecting that the insurance company would once again simply write them a check for the loss that this time they didn’t incur since they didn’t replace the roof the first time. Insurance companies found that withholding the value attributable to depreciation until the roof was replaced worked as an incentive for homeowners to have the work done.
From time to time we run into someone who has an ACV policy for their roof. ACV stands for Actual Cash Value. When a homeowner is told that to save a bit on their premiums they can get an AVC policy they might be interested. Actual Cash Value is the Replacement Cost Value of the roof less the depreciation. Let’s take a home with a 15-year old Architectural Dimensional shingles that had an anticipated lifespan of 30 years. Chances are the adjuster will depreciate this roof by 50%. If the Replacement Cost Value of this roof is $6,000 and the adjuster depreciates it by 50% then the Actual Cash Value is $3,000. If the homeowner has a $1,000 deductible, then the total amount the insurance company will pay to replace this roof is $6,000 minus depreciation of $3,000 minus a deductible of $1,000 for a total of a mere $2,000 to replace the $6,000 roof.
We are all trying to save as much money as possible, especially on something like our roof, a necessary but not particularly exciting part of our home. Let’s say the insurance company estimates the replacement value for your roof at $10,000. You shop around and find a contractor who will put a new roof on your house for $7,500. Great, you think. You have a $1,000 deductible. This guy will do your roof for $7,500. You could pocket $1,500. If the contractor does the work for $7,500 that is the amount of the invoice he will have to submit to the insurance company to prove that the work was done and to get the depreciation released. Surprise! The insurance company will only pay the amount of the invoice less your deductible, not the originally estimated $10,000. If the contractor submits an invoice in the amount of $10,000 and then rebates you the $1,500 you were hoping to pocket, then you have both engaged in insurance fraud. Additionally, in the State of Colorado, it is illegal for a contractor to pay or waive all or part of a homeowner’s deductible. This law was passed in June of 2012.