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What does the age of my roof have to do with how my claim is handled?

Home Insurance

By Joanne Lemna | July 6, 2016

For most homeowners, the process of filing a claim and getting compensation for your damaged or destroyed home is fairly straightforward.

Take Peter and Angie Lawson’s experience. After a particularly cold snap two years ago the semi-retired couple ended up with three feet of snow and ice dams on the roof of their Spruce Grove AB home. But the worse was yet to come. Once the spring thaw came the couple was left with close to $45 000 worth of damage as water seeped across their roof over the trusses and down their walls. But with one quick call, the Lawsons met their insurance provider’s adjuster who quickly assessed their claim started a file and helped get the repairs finished and done. For the Lawson’s it was an easy straightforward experience.

No misconceptions

But the Lawsons also did not have any misconceptions about their insurance. They didn’t think their insurance policy settlement was some sort of windfall—a way to make money or to upgrade their home. They also weren’t surprised when some of the costs of the claim just weren’t covered. “Our roof wasn’t new. It was five years old and our claim was adjusted to reflect this explained Peter. But most homeowners don’t always understand that the age of their roof—or house or belongings or furnace and so on—can actually impact the claim limit coverage.

In the Lawson’s situation, the repair bill came to just $45,000 including tax but their insurance company didn’t pay them the full amount. Why? Well insurance policies typically don’t cover tax and just over $2,140 of the repair bill was GST so this wasn’t included in the final claim settlement. Plus their roof was five years old and should’ve lasted 25 years according to the manufacturer’s warranty. To reflect this depreciation the insurance company prorated the roof’s value. Since a new roof would’ve cost $15,000 than the depreciated value would be just under $12 000 (or a 20% reduction from the $15,000 maximum claim coverage). But because the Lawsons were claim-free their insurance provider decided to waive their $1 500 deductible. In the end, the Lawsons received just over $39,850 which they put towards the cost of repairs to their roof walls and floors.

How age impacts your roof (and home)

There are various ways that insurance companies can assess the value of an item that needs to be repaired or replaced. One method is by using “actual cash value” (ACV). This is a simple formula of determining the value of an item and then reducing that value based on depreciation. The Lawsons had a policy that used ACV so their roof was assessed based on the age of the roof and the guaranteed (or average lifespan) for that product.

There are some policies however that don’t use ACV. Instead, they’ll replace or repair the damaged or destroyed house component regardless of price or age. Known as guaranteed replacement cost (GRC) these policies are usually capped at a maximum limit say of $1 million so that only costs up to this limit will be reimbursed. Unfortunately, though most GRC calculations only apply to repairs and replacement of your home’s actual structure or building. Any claim for personal belonging replacement may still be subject to ACV calculations. Read your policy to determine how coverage costs are calculated on your home and belongings. (Keep in mind too that taxes and deductibles still factor into the final settlement amount even with GRC coverage.)

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