Insurance on Rentals whose value going up over the years.

[Naga A.]

I have had landlord insurance for all my properties whose insured values are what I paid for to purchase them for years.  However, those properties have their value gone up over the years and the insured value does not cover the actual value of the properties any longer.  I asked for quote for insurance whose insured value matches the actual value of the properties and was shocked by the prices (like a single family home I bought for $50K about 10 years ago whose value is like $250K, the quote is for $1650 with $5000 deductible).  I used to pay about $450 for the purchase price of $50K for the property.

Should I have insurance where insured value matches the actual value of the property and paid significantly high premium or keep the insurance whose insured value is significantly lower than actual value but pay significantly lower premium?

[John Mocker]

Naga,

Simcha is correct, the better way to insure your buildings is covering them for "Replacement Cost" (RC).  That is the cost to rebuild from the foundation up with the same kind and quality of materials.  The way you have them insured sounds like "Actual Cash Value" (ACV).  That is generally defined in the policy as the RC less depreciation.  The advantage of RC is that in the event of a partial loss, the claim payment is not reduced for depreciation.   If your building is 50% depreciated, a $100,000 loss would only be paid at $50,000 normally.  Generally the cost of ACV coverage is less because you do not need as high a limit.   One caution if you keep your current limits, ask your agent if there is any coinsurance clause (requires you to maintain coverage at a certian percent of what the limit should be) and what the impact would be on your policy.