Insurance Coverage Basics

[Cameron Moore]

First, there are 2 types of Valuations in insurance; RCV (replacement cost value) and ACV (actual cash value). RCV is almost guaranteed to replace your home back at the standard it was before it had a major loss. ACV is a cheaper policy that inputs depreciation into the equation where you most likely will not get back to what you had (let's say you have a $10k TV and the insurance company believes that Television will have a life of 10 years, each year the actual cash value will depreciate 10% so a stolen TV in year 5 would warrant the insurance company to pay $5k). With that being said, do not confuse Market value for replacement cost. You will most likely pay more for a property than it will rebuild for because inusrance is not concerned with land value or the rising and falling of the market. We all know cities that are more expensive to live in than the outskirts of said cities. If you have a $600k house in the city and the same exact house on the outskirts that you paid $450k for, do you think the materials cost more? NO.

Second, never sacrifice Liability coverage. Most policies have $100k, $300k, and $500k limits. ALWAYS go with $500k. The difference in rate between the lowest and highest is less than $20/year so it kills me to see agents write lower limits.

3rd, water coverages are important. Get the higher limits and endorsements.

Finally, THE DEDUCTIBLES. This is how you mitigate risk. Do not skimp on any coverages in a policy so that you have more cash flow. Just raise deductibles because they effect rate the most. A typical deductible is 1% of the replacement cost of the home but many investors who intelligently view inusrance for what it is will take a higher deductible for lower premium. When I say "what it is", I mean insurance is a safety net for disasters that would otherwise tank your assets. Too many people file petty claims, that is why insurance is so expensive right now.

Feel free to PM me if you have any questions. I could also connect you with brokers that are licensed in your state.