Insurance... Actual Cash Value or Replacment Cost

[Johann Kleisch]

What type of insurance coverage are other using for their rentals (Actual Cash Value or Replacment Cost) and why?

Best of Success!

[Ratho R.]

@Johann Kleisch My first question is what are you looking to insure? Do you have personal belongings/property in the rental unit? Are you just talking about the structure?

For property, I generally set my clients up with Replacement cost. For what they do, Replacement cost makes it easier to pay for the loss and replace what is damaged/lost. ACV has depreciation, so if you have a loss and you paid full brand new price, you may be losing some decent cash. However, if you are getting materials/property at a used/discount price, then you may still come out ahead. Either way, RC has benefit in my eyes as it counts today's cost. So, furniture for example, that $1,000 couch you found on sale for $500, will be looked at as today's cost of $1,000 to replace brand new. 

I strongly recommend finding an independent insurance broker in your area to help research options and rates. Independent can shop many companies at one time saving you time and energy to focus on your deals while making sure you are not wasting money on expensive policies. 

When you find a good agent to add to your "team", have them shop rates, then see what it would cost for the different coverage options there. Have your agent figure the break even point as in, ACV vs RC, is it going to increase your premium substantially vs how much more are you going to save on depreciation? If so, it might be better to do ACV and just offset the depreciation with your own funds (basically saved from the premium costs.)

Summary, and what I usually look at with my clients, does it cost much more to add RC? If not, then lets turn that tragic loss into a win and replace with some brand new items. Hope that helps with some perspective from an agent point of view.