Insuring my rentals. ACV vs RCV & $5k vs $10k deductible. What would you do?

Question

I'm re-evaluating my insurance on my properties. I am going to insure for purchase price + rehab cost, not the appraised value. I am getting proposals on ACV and RCV policies and $5k, and $10k deductibles. If there isn't much of a price difference I will opt for RCV and $5k deductibles insured for purchase price + rehab cost. I am aware of how ACV and RCV pay out claims and my insurance does not have a coinsurance penalty.

Please share how you insure your properties. The community's experience and insights would be helpful.

Greg Scott · Answer

As a guy who's been through about a dozen claims, always get RCV.  Don't skimp on liability coverage either. I typically used DP3 policies on SF. (Ask your broker)

James Mc Ree · Answer

I have a 5% deductible which is around $10,000 for my properties. This gives me a lower premium and I only plan to use insurance for bigger losses. A small house fire was 95% covered by the insurance company, but it still meant I had to pay about $8,000 in that case.

I recommend you tie this decision to the size of the reserve you maintain. If you have no/low reserve, then you might not have the $5k or $10k to repair, so be sure to have a reserve that is at least in line with your deductible.

Joe Manzella · Answer

Insurance guy here, if I could upvote Greg a dozen times I would.

RCV is the way to go, but be careful it may not cover all you think it does - typically RCV will only pay out if you actually have enough coverage for total rebuild and actually intend to rebuild following a catastrophic covered loss. Make sure that dwelling coverage amount is backed up by a replacement cost estimate based in some sort of reality.

Joe Manzella · Answer

Good on you for the umbrella! It's so cost effective and absurdly helpful coverage. Commercial package policies are fun since you can part them in and out - if those are annual I'd be worried you're missing coverage, but if they are monthly see if your broker is appointed with REInsure Pro or Steadily - they've been pure fire for my clients. Steadily especially in Ohio and MO, but make sure you've got that umbrella updated to include each property.

Lindel Smith · Answer

Agreed value or RCV....never ACV...Not every carrier offers agreed value, but the ones that do essentially allow you to insure the property for market value. If you know you're not going to rebuild in the event of a total loss situation, you can just take your equity and walk with agreed value. Its nice for RE investors who are buying properties where the market value is significantly less than the replacement cost and most carriers that offer agreed value will still do replacement cost on partial losses.

Joe Manzella · Answer

Man that's awesome! I'd love to see what carriers you've got on those. I insure mostly fix n flips in Ohio right now so it's a different cost calc, but when they flip to rental it'd be great to pick up a new carrier and just rip those.

Alex L. · Answer

I currently have less than 10 properties, and keep them all on a commercial policy. Each property runs me about $225 to $300 (cheap midwest homes), and I always do RCV (or agreed value, which another member mentioned). My deductible is $1k and I've been meaning to raise it to see if it'll save me a few bucks but I always forget since insurance isn't too expensive. I also keep an umbrella policy for a rainy day. I like to keep things simple.

Joe Manzella · Answer

@Matt Wells on the deductible, I usually ask my clients about their average cash position and the value of that property to their portfolio - would you be able to lose the income for 90 days from that property and pay $10k tomorrow? If not, could you do $5k?Once my investors get to ~10 cashflowing properties we usually do a big portfolio review. Take a look at loss history, carrier experience in the area, your personal claims experience, and many of my folks opt to go with higher deductibles either going forward or across the portfolio, but not until they have consistent cashflow from properties or a significant savings bank. The deductible is really just you saying 'I am comfortable accepting this much risk' so it depends more on your personal situation than anything.Edit: basically what James said, haha

Matt Wells · Answer

I should be good with liability. Each property has 2 million aggregate coverage. What deductible do you usually go with? I'll either choose $5 or $10k.

Insuring my rentals. ACV vs RCV & $5k vs $10k deductible. What would you do?

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