Know Your Policy: Howeowners' Terms for Roof-Related Risks

KNOW YOUR POLICY Homeowners’ Insurance Terms for Roof-Related Risks CONSIDER THIS SCENARIO: Following a hailstorm that damaged their roof, a homeowner faced a repair bill totaling $17,000. Assuming their Homeowners’ Insurance policy would cover the entire cost of the repairs, they were surprised that the settlement schedule—which is determined by factors such as the type, age, and condition of the roof—only covered about half of the total expenses. This left the homeowner extremely frustrated that they were responsible for paying the remaining $8,000 balance out of pocket.

What is worse than a client assuming they are covered, only to be surprised once a claim is filed?

Brokers and agents can proactively identify issues in coverage and dispel unease about seemingly hidden details by helping clients better understand the terms and conditions in their Homeowners’ Insurance policies.

To assist in this crucial step, the experts at Burns & Wilcox have compiled a comprehensive guide to explain important concepts and key terminology within Homeowners’ Insurance policies related to roof-related risks.

Actual Cash Value Coverage Under a policy that provides Actual Cash Value (ACV), coverage for an insured item is subject to depreciation. A roof Depreciation Schedule is often included with these policies, specifying how much the insurance carrier will pay toward a new roof based on the age of the roof and the date a loss occurs. ACV roof coverage is increasingly common on Homeowners' Insurance policies in the U.S.

Functional Replacement Coverage Some Homeowners' Insurance policies include Functional Replacement Coverage, which pays to repair or replace damaged property with materials that are less expensive but serve a similar function. This type of coverage may be more common in older homes or in situations where obtaining an exact match to the original materials is impractical or cost prohibitive.

Matching Endorsement A Matching Endorsement is an add-on to a Homeowners' Insurance policy that covers the cost of using exact-matching materials or finishes when replacing or repairing damage to a home. In a roof damage claim, for example, a Matching Endorsement can help ensure the repaired area of roof will match the existing roof in both appearance and quality.

Named Storm A named storm is one that has been given a name by the National Weather Service’s National Hurricane Center. Tropical storms and hurricanes are assigned brief, unique names to prevent confusion and facilitate clear communication. In a Homeowners’ Insurance policy, specific coverage terms may apply if the damage was caused by a named storm versus a non-named storm.

Named Storm Deductible Some Homeowners' Insurance policies may have a separate deductible that only applies to damage caused by named storms. This type of deductible is more common in areas at higher risk for hurricanes and other severe weather events.

Percentage-Based Deductible With this type of deductible in a Homeowners' Insurance policy, the amount a homeowner would be expected to pay in the event of a claim is a percentage of the home’s insured value. For example, if a home is insured for $200,000 and the policy includes a 2% deductible, the deductible would be $4,000. Percentage-based deductibles are becoming more common on Homeowners' Insurance policies today, particularly in areas at higher risk for certain perils.

Replacement Cost Value Coverage In the event of a loss, a Homeowners' Insurance policy with Replacement Cost Value (RCV) coverage would generally provide the amount needed to replace or repair an insured item with a new one of similar type of quality.

Settlement Schedule A Settlement Schedule outlines the amount an insurance company will pay for repairs or replacement in the event of a loss. With a roof damage claim, for example, the amount may depend on the policy terms, the age of the roof, the type of damage, and other factors.

Wind and Hail Deductibles In many parts of the U.S., such as the Midwest and noncoastal areas, there are separate deductibles in a Homeowners' Insurance policy that only apply to wind or hail damage. They are often percentage-based, typically ranging from 1% to 5% of the insured property value. Due to a rise in the frequency and severity of severe weather events, these deductibles are on the rise in many areas.

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