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Homeowners, Solar Panels Are Green but Improper Insurance Might Make You Blue

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Your rooftop solar system is installed, the panels are powering your daytime routine and you’re amped you’re doing your part to reach a zero footprint. Then the tornado touches down. Your home is destroyed, but it’s a covered peril, and your homeowners coverage responds without a problem.

Your homeowners policy limit is $200,000, just enough to rebuild your home, but not enough to cover the cost to replace your new rooftop solar system. You let your insurance company know, but they tell you the limit is capped at $200,000 followed by the dreaded words: "There’s nothing more we can do."

Now you’ve got a choice to make.

Rooftop systems are covered, but if your limits are too low, it won't matter

When your homeowner policy limits aren’t high enough to handle a total loss (that’s your house, clothing, window treatments, electronics, furniture, custom wood flooring, artwork, paint, solar system, etc.), you have to make sacrifices about what can be replaced. It always comes back to the insurance mantra: what it would cost to replace everything in the event of a catastrophe. If your home is reduced to rubble, what’s the price tag on that?

Let’s use the tornado example. Your homeowners policy has a declared policy limit of $200,000. You haven’t updated your insurance policy since you bought your house six years ago. You’ve done some improvements over the years and recently replaced your rooftop with solar power shingles but you never got around to calling your insurance professional about any of the upgrades. The tornado destroys your home and it’s written off as a total loss. Your actual cost to rebuild is closer to $215,000 by today’s standards (think increased cost of materials and labor), which doesn't include solar-powered shingles or the other upgrades you made to the rest of the home because the limits weren't adjusted.

Your green energy initiative can easily become a different kind of green initiative – cash out of pocket.

Pay twice for solar panels? No thanks

In the event of a total loss with insufficient limits, you could be left with a depressing game of "would you rather":

Would you rather: (a) pay out-of-pocket to replace your solar panel system or (b) forgo the replacement and give up on your zero-footprint dream?

A rooftop solar system can cost $18,000 to $40,000. Even though rooftop solar systems are considered part of your home's structure and insurance usually covers them automatically, it's not much help if there's not enough in the coffers to cover the costs. Without proper limits, you might have to give up your solar dream.

But what if your solar system setup isn't attached to the house?

Non-rooftop solar systems are other structures, by endorsement

If you have a solar panel carport or detached garage or ground-affixed panels (located on the lawn or other detached area of your property), review the other structures coverage in your homeowners policy.

Typically, other structures are any structures not permanently attached to your house (like a shed), and they’re normally covered for up to 10% of the declared limits on a standard homeowners policy. If your policy limit is $200,000, and your ground affixed panels are demolished by a windstorm, you’ll have $20,000 to replace the system. If you have any other structures on your property, you’ll be sharing that 10% with the solar panels. If you have a rocking she-shed in the yard, for example, along with your solar panels, you might not have enough coverage to replace both structures.

Talk to your insurance professional about your solar system to increase the coverage on your other structures.

Selling back energy to the utility grid? Check your business use exclusion

One consideration to check with your insurance professional about is the business use exclusion in your homeowners policy. If you’re selling back your excess solar-generated energy to the utility company, then you might have a business on your hands, at least from the insurance company's perspective. Check with your insurance professional to see if your solar system setup straddles a potential business use exclusion. You don’t want any surprises later when you’re looking for coverage.

A word on leased solar panels

Leased solar panels come with unique challenges, from reselling your home (liens or extra contract hassles for closing) to potential insurance issues (policy triggers and exclusions). If you're thinking of leasing instead of buying rooftop solar panels, talk to your insurance professional. Get clear on the coverage options and perils before you install.

Keep records

It’s always a good idea to keep detailed records of repairs and improvements made to your home. Not only is it helpful when it comes time to sell, but it’s also great for creating a realistic snapshot of your actual costs and what it'll take to rebuild in case of a total loss.

If your solar system costs $25,000 and the overall cost to rebuild your home is $200,000, you’re going to need to raise your policy limits to match. Your bids, contracts and receipts will come in handy when pitching the new limits of coverage to your insurance professional. They’ll also help in the event of a claim.

Risk and rooftop solar systems

Perils like high winds, tornadoes and fires can damage or destroy solar panels and their functionality. But solar panels also add a few unique challenges to the peril prevention mix. Do your homework about what can go wrong and educate yourself on potential liabilities so you can proactively plan your green transition.

Event

Potential risk

Home structural issue

Added weight can cause roof sag or structural damage to your home if it wasn’t designed to handle the excess weight

Snow

Added weight of snow or ice can cause roof collapse

Wind

Added wind force can damage panels or send them flying if mounted improperly

Lightning

Added layer for fire hazard or spread due to grounding issues and other electrical hazards already present with a lightning strike

Firefighting

Firefighters risk potential electric shock, electrocution, chemical exposure or hindered firefighting ability (rooftop venting is more difficult) due to rooftop solar systems

Reflection or glare liability

Improperly mounted panels could cause extreme and persistent glare that impedes on surrounding neighbors or businesses, leading to the potential for a lawsuit

Replacement modules

Mismatched replacement modules can lead to system lag and inefficiencies

Obstruction

Neighbor’s tree or other new construction can obstruct the sunlight from reaching the solar system

Drainage problems

Flat roof solar systems can run into drainage issues that result in rooftop “ponding” which poses electrical system and water damage hazards

Information and maintenance

Follow the guidelines suggested by the manufacturer and your qualified solar system installation expert.

  • Discuss the potential perils (like wind, fire, snow, hail or lightning) and proactive solutions with your certified solar system professional.
  • Get regular cleanings and maintenance checkups to your system inside and out.
  • Let your local firefighters know that you have a rooftop solar system (even shingle systems), so they’ll know what to expect in case of a fire.
  • Make sure the solar system manufacturer has enough inventory backup to match your system. Mismatched replacement modules can put a drag on the system and become inefficient.

Vet your solar contractor

When hiring a solar contractor, take care to research their qualifications. The electrical wiring can be tricky, and it requires a licensed electrician as well as an installer licensed in the art of solar systems. Get informed and be ready with questions before the bids start blowing up your phone.

  • Start by searching for solar initiatives at the local, state and federal level for licensed contractors and other initiatives (like tax breaks)
  • Look for a solar contractor who is certified in the specific system they are installing
  • Verify the solar contractor is qualified to install residential systems
  • Hire a qualified home inspector/structural engineer to verify your home can handle the extra load of a rooftop solar system
  • Clear the solar system setup with your homeowners association and local ordinances
  • If you’re planning on selling excess energy back to the utility grid, verify who connects your system to the grid
  • Make sure the solar contractor and all subcontractors are licensed electricians
  • Verify the solar contractor’s proof of insurance coverage (a certificate of insurance is a start, but also check with your insurance professional for recommendations)
  • Research the solar contractors’ business history and reviews
  • Ask about the process for the replacement of damaged solar cell modules
  • Verify all maintenance schedules and the costs associated with maintenance
  • Get all manufacturer and contractor guarantees in writing
  • Be familiar with what negates a warranty, manufacturer or contractor

Legal, accounting and insurance advice

Why not call on the power trio? After all, a solar system setup is a big investment with a lot of moving parts. It’s also an investment in the environment, long-term savings potential and your community.

  • Consider consulting an attorney to review any complicated contracts and warranties.
  • Reach out to your accountant about available tax breaks, recordkeeping considerations, receipts to retain, and ways to maximize potential write-offs for the upcoming tax year.
  • Ring your insurance professional with your plans to go green. Ask about what’s insured during the installation process and when your new policy limits should be activated on your policy.

Take your coverage to the limit – and beyond

Your solar system setup is an investment in the future. Protect that future with an umbrella policy that comes with higher limits that raise the roof, cover your swank solar setup and extend broad coverage over your auto, too.

This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem. 

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