Let’s start with some insurance basics. The word endorsement, does not mean coverage. In fact, many insurance companies use the word when they are intending to exclude something. For example, recent “cosmetic endorsements” added by many insurers don’t exactly read like exclusions.
In many cases, these endorsements come with attractive lower premiums. As the insurance companies contend, cosmetic damage to a home can add up to a lot of expense, and when that is excluded from the policy, it is, well, a lot cheaper.
But is excluding cosmetic damage such a good idea? For insurance companies it seems to be. Obtaining rate increase approvals takes time, and what can reduce the losses to insurance companies equally well is simply reducing the amount of coverage a homeowner receives. Their argument? Cosmetic damage does not affect the functionality of a home’s roof.
The problem is when insurance companies offer these cosmetic exclusions, they also limit replacement value of a roof to actual cash value (ACV). For example, on a 15 year old roof, the insurance company would cover the replacement value of the roof minus 15 years of depreciation. In short, not enough to actually replace the roof.
But the other, often overlooked, part of cosmetic exclusions is that cosmetic damage and the value of a home go hand in hand. So when cosmetic damage occurs, while it may not be the functionality of the home that is damaged, it may be the homeowner’s investment (and ultimately return on that investment) that takes the real hit.
Another very troubling part of cosmetic exclusions is that cosmetic damage – especially in the case of hail damage – can be very subjective. While hail hits may lead to loss of granulation or pitting, these changes, the insurance company would argue, do not decrease the functionality of the roof. Or do they? Many licensed roofing contractors would argue that hail damage, left untreated, will eventually lead to a leak. The only question is when. The bet the insurance companies are making with cosmetic exclusions is that it will be after the policy expires.
This article is brought to you by ASAP Roofing, a national roofing company that specializes in hail damage, weatherization, and roofing restoration. ASAP has offices in Dallas, Denver, and Indianapolis.