Insurance
Do I Need 3 Bids?
The short answer is NO!
In this article Goad Construction will explain how obtaining multiple bids or using a “preferred contractor” only helps insurance companies underpay claims.
Insurance Preferred Contractor
With most property owners insurance policies your insurance company is responsible for paying the entire cost of repairing your home or business after you pay your deductible. Thus, your insurance company has a strong motivation to minimize their costs. Some insurance firms will go to great lengths to delay or deny claims or use other questionable tactics to save money.
Insurance companies have deep pockets and they pay lobbyist a tremendous amount of money to influence government officials to protect their interests rather than the interest of home or business owners.
If the insurance company already knows the market value of fixing or replacing damage to your home or business, then why would they suggest, or in some cases insist, that you get multiple bids? It’s because the insurance company wants to manipulate you into either:
1. Obtain a cheap bid from some “Chuck-In-A-Truck” that is willing to repair your home or business for less than what the insurance is paying.
2. Create a bidding war between the contractors so they lower their prices below market rates to win your business.
In either case, the price reduction benefit only goes to the insurance company. Your insurance company will only pay for what the contractor charges and will not pay you the difference.
Furthermore, low estimates encourage contractors to cut corners. Any contractor that is willing to accept a below market payment must cut corners somewhere to survive. Unfortunately for you, this may be that the contractor is: using poor materials, or the required materials.
Another disadvantage is the reduced coverage offered by these policies. ACV policies do not cover the full cost of replacing an item. Instead, they take into account depreciation, which means the payout you receive will be less than the actual cost to replace the item with a new one. This can be especially problematic when it comes to significant investments, such as your home’s roof. If your roof is damaged and you have an ACV policy, you will not receive enough funds to fully cover the cost of a new roof, leading to potential financial strain.
RCV vs ACV Insurance Policy
Another tactic used by some insurance companies to save money, is their insistence that you use their "Preferred Contractor". Insurance companies want you to use their Preferred Contractor because they have cut a deal with the contractor to accept very low margins in exchange for guaranteed work. Thus, these contractors are motivated to cut costs by cutting corners on the work that they do for home or business owners. Regardless of what your insurance company insists, you have the legal right to choose the contractor you want on your home or business.
What is Actual Cash Value?
When it comes to insuring your home, understanding the difference between Actual Cash Value (ACV) and Replacement Cost (RCV) is crucial, especially when it involves something as significant as your roof. Both terms refer to how your insurance company calculates the payout for a covered loss, but they can lead to very different outcomes in terms of compensation.
Actual Cash Value is the amount your insurance company would pay to replace your roof, minus depreciation. Depreciation accounts for the age and condition of your roof at the time of the loss. For example, if your roof is 15 years old and has a lifespan of 20 years, the insurance company might consider it 80% depreciated. This means if your roof originally cost $10,000, the ACV would be $2,000, assuming no other factors are involved.
One significant drawback of policies like these is the higher out-of-pocket costs. In the event of a claim, policyholders will find themselves responsible for a substantial portion of the replacement cost of damaged or lost items. This can be particularly burdensome when dealing with high-value items or extensive damage, as the financial responsibility falls largely on the policyholder.
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