Between SNOVID and the recent hailstorms, many homeowners in central Texas are filing insurance claims. If you have never filed a claim, the claim report (aka loss summary) your insurance company sends you can be extremely confusing. Let’s face it – even if you have filed a claim before, it can be confusing. But with just some basic information, that “loss summary” can start to make a lot of sense.
In my opinion, the claim summary page is the most useful to the homeowner. Some insurance companies put it at the beginning of the report while other put it at the end, but all of them show you a table that looks something like this:
1. Line Item Total 28,663.25
2. Materials Sales Tax 858.16
3. Subtotal 29, 521.41
4. Overhead 2,952.14
5. Profit 2,925.14
6. Replacement Cost Value 35,425.69
7. Less Depreciation 10,627.71
8. Actual Cash Value 24,797.98
9. Less Deductible 3,446.87
10. Net Claim 21.351.11
11. Total Recoverable Depreciation 10,627.71
12. Net Claim if Depreciation Recovered 31, 978.82
Clear as mud? Let’s break that down.
- Line Item Total. This is the total of all the other pages of your claim report that show the line item detail. Those other pages are generally broken down by categories or rooms, with individual items under each section. The Line Item Total this is simply a total of all of those Replacement Cost Value (RCV) amounts from those pages. By the way, in order to best serve you, your contractor will need to see the entire report so that they understand precisely what work the insurance company is covering.
- Materials Sales Tax. In Texas, only the materials are taxed (not the labor) on all the line items, so this line item breaks out the tax for the materials.
- Subtotal. This is simply the Line Item Total plus the Materials Sales Tax.
- Overhead. Not all claims have overhead and profit (OHP), but if your does, this is where it shows. This is money for you to pay your general contractor with and is equal to 10% of the subtotal.
- Profit. This is another 10% of the subtotal – so the general contractor gets 20% for managing your project (and trust me, they earn it!).
- Replacement Cost Value (RCV). This is calculated by adding the Overhead and Profit to the Subtotal. This is often your contract amount if the contractor is performing all the work in your insurance scope/report.
- Less Depreciation. THIS IS IMPORTANT, if you read nothing else, read this. Depreciation is an amount held back by your insurance company that is generally payed to you after you have completed all the work. I meet so many people who think they do not get their depreciation back, but 95% of the time, you do. You need to make sure that you have a Replacement Cost Policy and not an Actual Cash Value (ACV) policy. If you have an ACV, you do not get your depreciation back. Sometimes certain items don’t allow for depreciation to be paid out (fencing is commonly not paid out). Depreciation is simply a calculation of how much of your project has already been “used.” So if you had a 30 year shingle that was 10 years old at the time of the hail storm, you have already “used” 33% of the life of your roof, and that’s the amount they would hold back to be paid at the completion of your project. The Actual Cash Value is what your roof was “actually” worth at the time of the damage.
- Actual Cash Value. This is simply calculated by subtracting the depreciation from the RCV amount. This is what your project was worth at the time the damage was incurred.
- Deductible. This line item is the 2nd most important thing to understand that causes a lot of confusion. Your policy has a set deductible amount in place. Your deductible is basically like your co-pay when you go visit your doctor – this is your portion to pay to the contractor. The insurance company will pay its portion and you will pay your portion; together, you will pay the contractor you hire to do the job both amounts. Some people have $500 or $1000 deductibles, but it is becoming more and more common for deductibles to be a percentage of the home value (most common is 1%). If your home is valued at $450,000 and you have a 1% deductible, your out-of-pocket cost is $4,500. If you have a 2% deductible, it would be $9,000. You can see why it is important to know what your deductible is!
- Net Claim. This is calculated by subtracting your deductible from your ACV. This is generally the amount of the first check that your insurance writes to you for your claim. This payment is to be used to get your project started (along with your deductible).
- Total Recoverable Depreciation. This is the exact same value as line item #7. The insurance company backed it out before, but now they are going to add it back in. This is assuming you completed the project and provided proof of completion (usually a final invoice or photos) to the insurance company. Generally, your contractor will submit the final invoice to your insurance on your behalf.
- Net Claim if Depreciation Recovered. This is the Net Claim amount (line 10) plus your depreciation (line 7 or 11). It is also the same as your Replacement Cost Value (line 6) less your deductible (line 9).
And that is your crash course in understanding your insurance claim! While we can handle all the math for you, we at Roofer Chicks also believe it is important for you as the homeowner to understand where your investment is going. If you want more help or have questions, we would be happy to assist you. Just call our office at (830) 629-7663.