Multi Family Insurance - Replacement Cost vs Actual Cash Value

[Tom Lipps]

Hi BP!

I have a question for you. My insurance Agent gave me two options to ensure my Duplex:

1) Replacement Cost

- if building is damaged the company buys the cost to replace the item

including current labor and material cost

- for example, if a fire occurs and kitchen is damaged and to fix it cost is

$10,000 the company would pay the $10,000 less your deductible

- if you want REPLACEMENT COST coverage you need to insure the building

for what it would cost to rebuild the building from ground up based on today's price for labor and materials

- Company replacement cost estimator shows it would take $328,000 to build the build like it is

2) Actual Cash Value

- this is similar to MARKET VALUE or Replacement Cost less Depreciation for age

- for example, kitchen fire again and to REPLACE the cost is $10,000, however if you

have Actual Cash Value coverage company would depreciate for the age and may reduce

claim with 30% depreciation, so payment would be $10,000 less $3,000 depreciation leaving

payment of $7,000 less deductible

Can you tell me what type of insurance you have? What are the pros/cons of each type?

Thanks as always!

- Tom

[David A.]

Hey @Tom Lipps, I am just now getting into a multifamily property and faced with the same dilemma. It seems like this would be a common question. Curious what you and your agent concluded. I too am getting an umbrella policy. My properties are older (1900s) and the rates are much higher than newer buildings. So, the difference between replacement and cash value for ROI is huge. Would love to hear what you went with.