Replacement Cost vs ACV

[John Zevenbergen]

I am looking at a foreclosure property listed at 50k and assessed around 85k. I requested a quote from an agent and he came back at almost 1, 000 / yr. This seemed high to me. Quote was from Northstar.

The agent said that the quote was at replacement cost, and because of the size and age of the home, the cost is higher.

My question is this - which is the best way to go, ACV or replacement cost?

Also, anyone have a good insurance company that they prefer for rentals?

[Simon Campbell]

You have asked a very important question and one that is infrequently considered.

Actual Cash Value (ACV): Insures the property as it is valued right now. It includes the value of all depreciation. Unless this is new construction, the ACV value will be less than the cost to rebuild.

Replacement Cost Value (RCV): Covers what it would cost to rebuild the home using current construction costs. This is not the market value of the property but what it would cost to build it.

This is what causes sticker shock when buying discounted properties. Your property is listed at 50k but the 85k assessment seems to indicate that you could be looking at a $150k reconstruction costs.

Best Choice? If the home is old and you would not rebuild in the even of a total loss, opt for the ACV policy. If you are looking to cover your investment costs only, opt for the ACV (if the value equals your purchase price). The RCV, however, gives the better protection against loss.