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How Roof Insurance Money Works & the Perfect Way to Explain It to Homeowners

Hey, Adam, here at The Roof Strategist. Today, I’m going to share a very powerful lesson for brand new salespeople and seasoned pros on how to understand this insurance process and how the insurance money works. This will help you communicate really clearly with a homeowner, so you can stand apart and win more business.

I’m going to do this in two parts:

  • Part 1: Education & Ground-Up Understanding
  • Part 2: How to Use This as a Sales Tool

So, let’s jump right into how I explain this process, so you can understand and experience it as I would explain it to a homeowner. I’m going to be using an analogy, a story about the homeowner’s car, as I explain the roof insurance process, and I’m going to talk to you as if you were the homeowner.

Why analogies? Because we often get too in the weeds and too detail-oriented with the terminology of the insurance process or someone’s home or roof.

Instead, I want to break this process down into very simple stories that they’re going to understand. Since darn near every homeowner you serve has a car or a truck, let’s use that for our analogy.

Now, let’s dive in.

Use a Car Analogy to Explain Roof Insurance Money to Homeowners

Using the car analogy, let’s pretend that you, our homeowner for this example, drive a 2015 Ford F 150 pickup that was a top-of-the-line truck when you bought it. Here’s how we get started.

What to say to a homeowner: Now, Mr. Homeowner, when you bought your truck, let’s say it was $50,000 (I’m using rough estimates here to simplify the math). By 2020 or 2021, the vehicle’s 5 to 6 years old.

Now, let’s say something bad happens, and the car gets totaled (but don’t worry, everyone’s okay). Someone crashes into the parked vehicle, and it gets smashed. Now, the vehicle is done.

What does the insurance company do? Well, they’re going to cover it because you’re insured, right? But are they going to write you a check for $50,000?

No, they’re not because the vehicle is 5 years old, and it has a bunch of miles on it. So, the insurance company owes for like kind and quality. I’ll show you how this comes into play here in a minute.

Now, to replace your truck, you’re not going to get paid the original $50,000 value. You’re going to get what it’s worth today. And what’s that vehicle be worth today?

For our conversation, let’s say it’s going to be worth half, just $25,000 in 2020 or 2021. That means to buy the same vehicle today — let’s say a 2015 F150 truck with low miles, platinum, whatever it is — it’s $25,000.

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How the Deductible & Actual Cash Value Work: The Vehicle Analogy

Next, we explain the deductible and how actual cash value works.

What to say to a homeowner: The insurance company’s not going to write you a check for $25,000 because you still owe your deductible.

What’s the deductible?

The deductible is the contractual agreement between you, the homeowner, and your insurance company. It’s the same no matter what, regardless of whether there’s a $2,000 loss or a $2 million loss.

Side note, here. I know there are some new deductibles coming up, which are a percentage of the claim or a percentage of the home value, like 2% of the value of the house. Generally speaking, though, that contractual agreement is going to be a fixed cost. So, continuing with the homeowner, here’s how we break down actual cash value and the deductible.

What to say to a homeowner:  We’re going to subtract your deductible from the $25,000, which is the actual cash value (ACV) of your vehicle — meaning that is what the vehicle is actually worth today (in 2015 that F150 was worth $50,000, but today, it’s worth $25,000). The ACV is some insurance language that you’re going to see come back later. It’s what the roof is worth today, the actual cash value.

So, if your deductible is $1,000, that means you said, when you got your insurance policy, that you’re committed to covering the contractually obligated portion of the claim by paying that deductible.

So, here, you would receive a check for $24,000. This is the first payment, and here’s what the math looks like.

$25,000 ACV minus the $1,000 deductible = $24,000 first payment to the homeowner

Recap: If an insured vehicle gets totaled later, we’re going to get paid the actual cash value or the ACV (meaning what it’s worth now) minus the deductible. That’s our first check.

How does this relate to the roof? Now, it’s time to jump on the other side.

How to Explain Roof Insurance Money to Homeowners

To bring this home to roof replacements, we need to show the homeowner how ACV for the car analogy translates into replacement cost value for their roof.

What to say to a homeowner: Let’s say your roof, brand new, was $20,000. That’s the cost to replace the roof — the replacement cost value (RCV). The RCV is like the ACV we talked about for your truck.

So, you have a $20,000 roof you need to replace. But that roof is now 15 years old, and it was expected to last 30 years. That means half of its lifespan has been used up.

The initial payment for your roof is going to work just like your truck. The insurance company is not going to pay what it’s worth at sticker price, brand new. They’re going to pay you what it is worth today, the actual cash value.

At 15 years old, that’s about half the roof’s lifespan. You’ll see this come up on these scopes of loss, the amount of depreciation, which they’ll either do in a percentage or a number of years.

So, if this was a 30-year roof, and it’s now 15 years old, then it’s worth $10,000. That is the actual cash value or ACV.

Like with your truck, again, your amount might be your deductible. For an apples-to-apples comparison (to the vehicle analogy), we’ll say the deductible for the roof is $1,000. That means you would receive a $9,000 first payment.

$10,000 ACV minus the $1,000 deductible = $9000 first payment to the homeowner

Roof Insurance Money: Explaining Exclusions & Differences

Now, here’s something important to note with roof insurance claims — potential exclusions.

Some policies will only cover the actual cash value, meaning the homeowners will have to come up with the extra $10,000 for their roof. That’s a very rare thing we have to look out for, so you have to ask about it.

Generally, though, homeowners will have full replacement cost value coverage, meaning the entire roof will get paid for.

How to Explain Vehicle Claims vs. Roof Claims

So, this begs the question — what if the homeowner says, “Well, I only have $9,000 right now. How do I get the rest?”

It’s simple. This is where it’s a little different than car claims, though, because homeowners who might have gone through this process might be thinking, I have $24,000!

So, they want to go shop for a 2015 F150 truck that’s in better shape, but they’re going to try to find it for $24,000. And, really, they’re going to try to find it for like $20,000, so they can pocket the difference. That’s how it usually works with vehicle claims.

It does NOT work that way when it comes to their home, and the reason for that is simple. Now, this is so important to understand because of the deductible objection. Homeowners will say, “I don’t want to pay my deductible!” or “Help me save some money here.”

You’re going to run into this a lot, and it’s really important that you understand how to overcome it.

How to Explain ACV vs. RCV

Now, the homeowner has received this check for $9,000. The difference between what their roof is worth today versus what it was worth when it was new is called the depreciation. Going back to the car analogy, here’s how you explain the difference to homeowners.

What to say to a homeowner: Just like a car — a brand new car that you drive off the lot — your roof will depreciate in value. It goes down in value. So, depreciation describes the difference in value, the difference between what the roof is worth right now versus what it costs to replace it.

Going back to the car analogy, depreciation of a vehicle that’s $50,000 new and is 5 years old when it’s totaled, that truck is not worth $50,000. It’s worth $25,000. This difference here is the depreciation.

Now, here’s where it gets fun. The insurance company WILL pay the full $20,000 minus the deductible to get the roof done.

Here’s the catch. The only way for that homeowner to receive the total RCV, the replacement cost value, is to complete the work — to actually do it, complete the work, and invoice the insurance company.

Here’s what that means to you.

How to Use the Roof Insurance Money as a Sales Tool

When the homeowner gets the check for the actual cash value minus the deductible, this is how you can use that money as a sales tool.

What to say to a homeowner: I’m going to assess your property and make sure everything has been documented properly on the paperwork. That’s the paperwork you’ve received or will be receiving.

Then, I’m going to go ahead and facilitate all those repairs, line item by line item, so you know exactly what I’m doing. After that, I’ll invoice the insurance company saying “Hey, State Farm or Allstate or whoever, we did this homeowner’s roof. Please release the depreciation that is left over.”

Once the insurance company sees the invoice and they’ll say, “Yep, the homeowner did the work,” and they’re going to write the check for the difference of that, minus their deductible.” So, they’re going to write a check for an additional $9,000. This is what we call the depreciation. It’s been released.

In other words, the insurance company is going to hold this money to them close and say, “We’re only going to release the depreciation when you actually do the work and prove it.” This is incredibly important.

Why Does the Insurance Company Hold onto the Money?

Now, in roofing sales, we know there are two reasons why the insurance company does this. Here’s how to explain each reason to homeowners — and keep in mind that the second point is critically important for anyone in roofing sales to understand because a lot of seasoned sales guys don’t know this.

  1. Insurance companies know some homeowners will pocket the cash: With those checks in hand, it’s tempting for homeowners to think, maybe my roof’s not THAT bad. I could use $9,000 right now. I’ll let it be. Then, they pocket the cash. So, the insurance company, by not writing the check for the whole $19,000 right out of the gate, has only paid $9,000 on what would have been a $19,000 claim. And the homeowner didn’t walk away with the whole $19,000. Now, here’s the catch.
  2. If you pocket the cash, your roof is no longer insured: If you don’t get your roof done and you pocket the cash, the insurance company has not only saved $10,000, but your roof is now also not insured because the insurance company already paid out on it. It’s like saying I lost my wedding ring twice. From the insurance company’s view, you’ve already lost it once, and they’ve already paid you for it. How do you lose it again if you’ve already bought a new one? It just doesn’t make sense. It doesn’t add up.

By the way, I have seen this happen in the field. Personally, I’ve worked on claims that I thought I had in the bag, and then the adjuster showed me that claim had been paid. So, it’s key to point out to homeowners that the insurance company holds on to money to protect its own interests. They’re paying less upfront, and the roof’s no longer insured.

How to Bring It Back to the Car Analogy & Drive Your Point Home

The final point to explain to homeowners can really make an impact. You’ll bring it back to the car analogy here and explain how trying to pocket the cash can be insurance fraud.

What to say to a homeowner: Now, here’s the other thing, Mr. or Mrs. Homeowner. Remember, in the car analogy I just talked about, how someone might look to save some money? They’d buy that next car for $20,000, so they can put the extra $4,000 in their pocket. And I told you that it doesn’t work like this for roofs because the only way to cover the costs is to invoice the insurance company.

So, here’s the funny part. If I do the roof, for $18,000 and not $20,000, and then I invoice the insurance company, for $18,000, they are going to release up to that amount minus that deductible. So, instead of releasing the $9,000, they’re only going to pay the additional $7,000 because it’s the homeowner’s responsibility to pay their deductible.

And the only way to cheat the system is fraudulent. There are new laws that are coming into effect on a regular basis. They’re looking for this because it is fraudulent. And the only way to try to pocket extra cash is for the roofing contractor to write an invoice with a fake amount.

That puts you, as the homeowner, and the contractor in a position of insurance fraud because you are providing false information to the insurance company, saying, “we did it for this,” when you’re actually going to pocket the difference.

That’s how I use the analogy to explain this process and make it crystal-clear for homeowners.

Recap: How to Explain Roof Insurance Money to Homeowners

Let’s recap with a quick summary, so you know how to present this next time you’re talking to homeowners.

  1. Use the car analogy to explain this process to homeowners: The top number of what the vehicle is worth is considered the replacement cost value (RCV). These RCVs go up every year. When we’re talking about the replacement cost value on a roof, the RCV is changing because material and labor rates fluctuate. And, usually, they’re going up. So, this is the top line of what it will cost to replace the roof in today’s market.
  2. Explain actual cash value: The insurance company is going to look at the actual cash value (ACV). They want to know what the car or the roof is worth today. What condition is it in? Is it 5, 10, or 20 years old? That’s how they assess ACV and figure out today’s value of an older car or roof.
  3. Explain the deductible & what they’ll see in the first check: So, from the actual cash value, the insurance company is going to take out the deductible. That’s the contractual agreement the insurance company and the homeowner made when setting up the policy. In this example, it’s $1,000. So, the actual cash value minus the deductible equals the first check.
  4. Point out how roof claims are different than car claims: Now, with a car claim, the insurance company is going to pay out the whole amount, and people can pocket the cash. But, when it comes to the roof claim, this first check is just basically enough to get the job started and pay the deposit. Remember, if the homeowner doesn’t do the work, the insurance company just saved $10,000, and they don’t even have to insure the roof anymore because it was already paid for.
  5. Emphasize that the work has to be done first: All the roof repairs need to be completed, making sure everything is listed on the insurance scope loss. Then, the contractor does the work and invoices the insurance company, at which point they release what’s called the depreciation. That’s the difference between the new value and today’s value. With the depreciation, the insurance company is going to release those funds at the end to the homeowner, paying them and getting them made whole.
  6. Clarify that gaming the system is FRAUD: Again, the amount the insurance company releases MUST be invoiced to that company. They’re going to take that deductible out no matter what. Falsifying information or playing any games is insurance fraud. And believe it or not, there are lots of people behind bars right now for doing stuff like that. So, don’t do it.

If you need to bring a little sketch pad and sketch this out for homeowners, it will help them make sense of everything because all of them are focused on one thing. They’re thinking, how do I take this and save money?

When you explain the roof insurance process this way, regardless of whether you’re a seasoned pro or you’re brand new to roofing sales, you’re going to overcome that deductible objection. You’ll know exactly what to do when you hear homeowners say, “I don’t want to pay it. How much can you save me?”

For more on roof insurance claims and money, check out my videos on How to Start Reading Scopes of Loss, What to Do When Homeowners Don’t Want to Pay the Deductible, and 3 Steps to Getting Homeowners to Agree & Sign with You.

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Thanks for joining me, and I look forward to sharing more with you in the next blog.