“I Didn’t Know I Had Actual Cash Value on My Roof!”

While shopping around for home insurance, it may be possible that one company is significantly less expensive than another. But at what cost? One way an agent can reduce your insurance cost is by giving you Actual Cash Value on your roof. Here’s what Taylor Richardson of Elite Insurance has to say about Actual Cash Value.

Wait. What does Actual Cash Value (ACV) mean? ACV means a depreciated value. For insurance purposes, your Home, your Roof, and your Personal Property (the stuff inside your home) can be depreciated with ACV Coverage.

This means instead of the insurance company replacing a J. Crew shirt with another J. Crew shirt, they replace it with a shirt that’s more of a garage sale value. The shirt may function and look similar to the original J. Crew shirt but it’s obviously not the same quality.

Where I see ACV most often used is on roof coverage. Sometimes it’s mandatory with an insurance company but 97% of the time it’s chosen by the Agent. Now, why would an agent choose this coverage? Well, there are a few reasons but the most common reason is because it makes your home insurance price less expensive.

Most of the time, consumers have no idea they have ACV coverage on their roof. All they know is they said the price was too high and the agent magically decreased the price of the policy to make them go away. (Tip: the only way an insurance agent can change your price is to change your coverage or change your discounts.)

Now, let’s look how ACV Coverage on your roof applies when you have a claim:

You own a $200,000 Home. The roof claim estimate is $20,000 to replace your 15-year old roof. Due to ACV Coverage on your policy, the insurance company is depreciating your roof 1% for each year old. Here’s what you owe…

1% x 15 years = 15% Depreciation (1% depreciation for each year old the roof is)

15% Depreciation x $20,000 Roof Estimate= $3,000 (what YOU owe due to ACV coverage)

So, the insurance company pays $17,000 and you pay $3,000 right? Nope. You still have to pay your deductible as well. Most likely you have a 1% deductible for wind/hail-that’s 1% x $200,000 Home = $2000 Thus, your $2,000 deductible plus the $3,000 you owe from ACV Depreciation has now turned into a $5,000 expense for you.

When you bought home insurance you knew you had a deductible and probably had an idea about how much it was, right? What if you have a claim and discover you have ACV Coverage on your roof? How much do you think that would cost you? How would that make you feel? What could you have done to prevent that?

Thanks for sharing your knowledge with us, Taylor!