Actual Cash Value v. Functional Replacement Cost Insurance?

[Sarah Msuya]

Hello everyone,

I am under contract on my first long term buy and hold rental. It is a 4BD/1.5BR SFH in Auburn Maine. I am paying $113,000 and will be replacing the roof on it this spring. Everything is currently functioning in the home but the furnace, roof, hot water heater etc. are beyond their expected life.

When I called Progressive, they were able to offer me coverage from two different underwriters and I'm torn on which to go with. 

1. Foremost insurance (Annual Cost: $986): $2500 deductible (will be changing to $1,000 per lender requirments); $180,000 functional replacement cost; $300,000 personal liability; $5,000 Sewer, drain, or mold mitigation ($250 deductible). The original quote with all the bells and whistles was $1,346. My primary home is worth twice this and insures for $614 - so the $1,346 was shocking. I took off everything I could and the $986 was as low as I could get the price. 

2. American Modern (Annual Cost: $677); Actual Cash value is market value minus land value; I took my purchase price of $113,000 subtracted the land value of $14,600 and came up with $98,400. $1,000 deductible; mold/remediaton - $5,000; personal liability $300,000; loss of rent - up to $9800. 

The main piece I am confused about it is what would I actually get if I went with option 2. If the house burned down then I would get $98,400 minus depreciation. Since houses in this area really don't depreciate, I believe they are talking about the individual components of the property, e.g. If the roof is over 20 years old then its worth $0 because its beyond its expected life? 

I would love some clarity on what a home built in 1867 with older but functional components could really get in the event that it was a total loss. Would my $98,400 have $10K taken off for the roof, $10K taken off for the old furnace, $2K taken off for the water heater etc... ? One insurance agent told me a cash value policy is useless while another said its a popular choice for investment properties. 

In the event of a total loss, I would really just be concerned with paying off the mortgage and moving on so the actual cash value sounds like it might be a good option if I could understand what I would realistically get considering the "market value minus depreciation" wording of this? 

Thank you!

Sarah M