Homeowner's insurance is a necessity if you own the home you live in, but not all policies are equal. In fact, you should check your policy to see if it offers actual cash value payouts or replacement cost payouts. These are very different types of coverage, and they can yield very different results if you need to make a claim for any type of damage. Storm damage to a roof is a very common type of claim made on home insurance, and this will explain how these two types of coverages would be handled if you had to make a claim for this purpose.
Actual Cash Value
A home insurance policy that offers actual cash value (ACV) is often a cheaper option than a policy that offers replacement cost coverage, but there is a good reason for this. Policies with ACV offer payouts for claims that are equal to the actual value of the item that was damaged. For a roof with storm damage, the insurance company would determine the amount of damage done to the roof first. After that, they would determine the roof's actual value based on age. They would then compensate you for the damage according to the roof's actual value.
If your roof was 15 years old, they may tell you that the roof itself is only worth $3,000, and this would be the maximum amount you could receive from the claim if the insurance company approves it.
The other method and type of policy offered through home insurance is called replacement cost. With this method, the insurance company will pay out more money on a claim, simply because they will base the value of the claim on the amount it will cost to replace or repair the damaged item. In other words, the current value of the item does not matter to the insurance company when a claim is made. If there is storm damage to the roof to the extent that the entire roof must be replaced, the insurance company will pay for the entire roofing project.
The Difference In Costs For These Policies
If you are not sure which type of coverage you have with your home insurance, you should call your insurance company and find out. It's important to realize that insurance companies generally charge higher premiums for policies with replacement cost coverage, and that is primarily because the coverage is better for homeowners. The claims insurance companies must pay out are usually higher when the policies have replacement cost coverage instead of ACV coverage.
You may also want to talk to a home insurance agent about a third option, which is called extended replacement coverage. This option is the best type of coverage you can have on your home, but it will probably be the most expensive type to purchase. With extended replacement coverage, you may be able to get more from your insurance claim than the amount it actually costs to replace whatever was damaged.
A good option to consider too is raising your deductible a little to compensate for the costs of getting better coverage. By doing this, your policy price might decrease a little from having a higher deductible and increase a little by adding better coverage. When it is said and done, your policy amount might remain the same.
In either case, you would still be responsible to pay for the deductible that you have, but the insurance would kick in and pay accordingly for the remainder depending on which method is used. If you would prefer having replacement cost coverage, call a home insurance company like Gateway Insurance and ask for a quote that offers this type of coverage.