07/01/2025
This, the second in the series, is about Homeowners’ Insurance, Deductibles, Depreciation, and Replacement Cost Benefits.
We frequently find that people we’re helping with insurance claims need assistance because they have never navigated the process before. At the suggestion of a friend who deals with a different type of insurance, I’m creating this series about roofing, insurance claims, and related matters.
Understanding these is critical when you have a claim. Here's a breakdown of each term and how it works in Texas:
A deductible is the amount you pay out of pocket before your insurance covers the rest of a claim. I advise everyone to review their insurance carefully when it renews. Last week, a friend who thought he had a 1% deductible found that it had been increased to 3% when he renewed a few months ago. When you buy homeowners insurance, you agree to pay the first part of any claim, or the deductible, before the insurer pays the balance, so you don't want to be surprised by a significant increase.
In Texas, especially for windstorm, hail, or hurricane coverage, deductibles are usually a percentage of your home’s insured value (e.g., 1%-5%). In the past, deductibles were typically a smaller fixed amount, such as $250.00 to $1,000.00, and there are still a few of those in effect. However, many new policies require deductibles of 2% or more for wind and hail, while the deductibles for other perils may be lower. Your deductible can also be higher.
For example, if your policy has a 2% deductible for wind and hail on a $300,000 home, your deductible would be $6,000. If it’s 1% for other perils, that deductible would be $3,000. You must pay this amount before your insurer will cover the remainder.
The deductible applies each time you file a claim, not annually. In Texas, it is illegal for a contractor to discount, absorb, cover, rebate, or in any way “waive” your deductible. That constitutes insurance fraud, and it is a crime that could implicate you. Here’s a link to the Department of Insurance page about waiving deductibles: https://www.tdi.texas.gov/tips/can-a-contractor-waive-my-deductible.html
Depreciation is the most misunderstood part of a claim for many homeowners. Depreciation is the reduction in value of an item, typically due to age. Insurers typically initially pay the actual cash value (ACV), which is the replacement cost value minus the depreciation.
As it relates to roofing, depreciation typically applies to items such as shingles and other elements of the roof. For example, if you have a thirty-year roof that’s ten years old, the adjuster may depreciate the value of the replacement by one-third, or 33%. So, if the roof is valued at $15,000, the adjuster could depreciate the shingles by $5,000. That leaves an Actual Cash Value of two-thirds, or $10,000 in this example. Other elements of the project, such as gutters or skylights, will have different estimated lifespans, so the depreciation percentage will vary according to each item.
Don’t panic about depreciation! Most policies have what is called a Replacement Cost Benefit. This benefit covers the full cost to replace damaged property with new items of like kind and quality, without deducting for depreciation. On most homeowners’ claims, there is a two-step payout process. Review your policy to be sure you have the Replacement Cost Benefit.
If you have the Replacement Cost Benefit, which most site-built homes have, your only out-of-pocket expense should be your deductible and possibly any optional upgrades or improvements.
When the adjuster writes the scope of work and estimate, the depreciation is withheld from the Replacement Cost Value (RCV) until the job is completed and proper documentation is submitted to the insurance company. When the work is certified complete, the insurance company will release the depreciated amount and send the balance of the replacement cost to the owner.
It is essential to note that not all policies automatically include the Replacement Cost Benefit; you may need to add it as an endorsement to your policy. Last week, we found a customer whose claim had RCV for all but the shingles. Her policy had a clause for non-recoverable depreciation on the shingles. By the way, the depreciation on fencing is also commonly non-recoverable.
Practical Tips:
When it’s time to renew your policy, look at these things in detail and discuss with your agent. Always check whether your policy is ACV or RCV.
Know your deductible structure. It may change when you renew, and you may want to consider other policies or the possibility of “buying down” your deductible.
Keep receipts and photos for major purchases and temporary repairs to aid in claims.
If you need help navigating these things, please don’t hesitate to call on us. We have licensed adjusters helping make complicated things easy. Our company is backed by The Good Contractors' $25,000 warranty on workmanship, and we believe in taking care of our customers like family while we give back to the community.
No. A deductible is part of your home insurance policy. It’s illegal for contractors to waive your deductible or help you avoid paying it.
