Actual Cost Value vs. Replacement Cost Coverage: How Should I Insure My Rental?

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Disclaimer: I am not an insurance expert, nor do I claim to know exact policy types or coverage limits that should be in insurance policies for rental properties. Therefore, any information I provide is merely a stepping stone to helping you realize what kind of policies are out there. For further details and guidance, contact an insurance agent. Because I’m not one! In fact, I invite comments from anyone who can add more insight to this topic to help aid in providing a full understanding.

Believe it or not, insurance is not the most exciting thing to talk about when it comes to a rental property. I mean, maybe it’s exciting thinking about… nope, it’s never exciting. But it is a necessary evil. This article is a tricky one to write because I just honestly don’t know a ton about insurance. I can’t even tell you what coverage amounts are in the policies I have on my properties. Makes me quite the credible author to be covering this topic, huh! But I can give you a quick birds-eye view understanding of a couple of options when it comes to choosing an insurance policy for your rental property.

Actual Cost Value (ACV) vs. Replacement Cost Coverage

Oh geez, I already lost you. I know, even the terms are painful to read, much less to have to interpret and comprehend. Okay, don’t start snoozing yet. I’m going to keep this short and to the point.

Chances are, when you reach out to an insurance company in regards to insuring your soon-to-be rental property, the insurance agent is going to ask if you want Actual Cost Value (ACV) or Replacement Cost Coverage. At which point you most likely respond with, “Huh?”

Here’s what these two coverage types mean, both in official language and layman’s terms:

Official Language:

  • Actual Cost Value (ACV): The replacement cost minus depreciation, also known as “market value.”
  • Replacement Cost: The cost to replace the property in full, including similar building materials and structure, and on the same locale as the initial property.

Layman’s Terms:

  • Actual Cost Value (ACV): You walk away with a check for the market value amount of the property. The end.
  • Replacement Cost: You are compensated the amount it will take to actually rebuild the property, and you actually rebuild the property. (Oftentimes you will be paid the ACV amount first, and then once the property is rebuilt, you then submit the extra to the insurance company, at which point they will reimburse you that amount.)

Related: Property Insurance: Why Coverage Gets Dropped & How to Handle It

Notice in the layman’s section, the one major component that is missing: an explanation on how depreciation plays into the equation. Why did I leave it out? Because depreciation is one of the coolest yet most mysterious calculations I think in all of rental property world, and I couldn’t care less to understand it, yet I love collecting income from it. I let depreciation do its thing, and I don’t worry about how it does it, I just make sure it does it. Therefore, I can’t explain it to you.

But really, I don’t think an in depth understanding of depreciation in the context of these two types of coverage is all that necessary if you can just understand that Actual Cost Value (ACV) covers market value and you don’t have to rebuild the property. You just walk away with the check, and Replacement Cost covers actually rebuilding the property, which will inevitably cost more than market value.

Which Coverage Type Should You Have on Your Rental Property?

It’s up to you. Either one is fine, and technically, there is no right or wrong answer. All you need to do in order to decide which coverage you feel better with is ask yourself, “If my rental property burns to the ground, do I want to rebuild it or just take the check?”

That’s it. That’s all you have to ask yourself. Think about it — which do you want to do?


  • Emotional connection. How emotionally tied to your rental property are you? If you are crazy-tied to it and don’t ever want to let it go, choose Replacement Cost so you can rebuild and recreate your property. If you couldn’t care less about the property and are only in it for the financial investment, take the cash and run with an Actual Cost Value (ACV). Most often emotional connections lie more with people and their primary homes rather than rental properties. My personal feeling on my rental properties? No emotional tie whatsoever (except they are all admittedly very cute)! Bring on the check.
  • Cost of coverage. No major emotional tie to your rental property? Lucky you! Actual Cost Value (ACV) policies are usually cheaper than Replacement Cost. The ACVs require a lower payout than Replacement Cost, so it makes sense that the cost of the policy would be cheaper. More cash flow for you!
  • Insurance company. What if you are like me and have no emotional tie to your properties whatsoever and would be totally stoked to just take a check for the value of the property and disappear with it, but then the insurance company you get your policy through only allows for Replacement Cost coverage? Well, then you’re stuck, like me. I use USAA for just about everything in my existence because they are drop-dead amazing (you have to have military ties to use USAA, though, which is why more people don’t use them), and they only allow for Replacement Cost. I love them enough that I just go with it and pay the higher premium. To me, to have such an amazing company is worth it. However! If I went with another company who allowed me the choice, I would choose ACV. Regardless, check with your company and make sure they allow for both types of coverage before you stress over which to go with.

Recommended Coverage Amounts

I can’t recommend a thing on this because I don’t know one number from another. If you’re asking yourself who let me write a blog on this topic if I don’t even know coverage amounts, I wouldn’t blame you. I trusted my insurance agent to recommend what made the most sense, and I went with it.

The one thing I did have a hand in choosing, however, was the deductible amount. That one took a lot of thought, and I still don’t have a solid answer on it. If you choose a higher deductible, you will pay a lower premium for your policy. Now, where the best balance of those two things is I have no idea. This one should mesh with your comfort level.

If a significant amount of damage happens to your property, how much are you willing to shell out of pocket to cover it? I think I’ve bounced between policies with a $2,500 deductible and ones with $1,000. You can get deductibles as low as $500 or sometimes $250, but you will pay a premium for it. Sorry, but you’ll kind of have to weigh this one on your own. But know that this is one number that really doesn’t have a standard or required amount, so it’s totally your picking.

My best advice in terms of coverage and coverage amounts is to shop around. Get quotes from several insurance companies and then compare those quotes, including the premium price and the coverage amounts and limits, and see what looks standard to you. I can’t imagine all the quotes would look drastically different from each other, but who knows.

Umbrella Insurance Policies

Now, this confuses people sometimes. The two types of insurance policies noted above are types of homeowner’s insurance. Those are the basic insurance coverages on any property. Homeowner’s insurance, in its general form, is what everyone has on any property they have, whether it be their primary home or an investment property. This is the basic type of insurance, and everyone has to have it.

An umbrella insurance policy, however, is essentially an add-on. You would not have an umbrella insurance policy without a basic homeowner’s policy.

The umbrella insurance policy is a liability protection. In your homeowner’s insurance policy (whatever type it may be), there is a certain level of liability coverage. The umbrella policy just adds additional coverage limits to that. Typically, an umbrella policy will insure you up to $1M in liability coverage and some policies may hit $2M. As far as what companies offer umbrella insurance policies, I can’t quite tell you since I do everything through USAA, and they offer them. I have heard it can be tricky to find a company who offers it, and some who do require that your homeowner’s policy be through them as well in order to cover you with an umbrella policy. Just ask around, such as on the BiggerPockets Forums, for referrals for companies who offer them, and certainly there should be plenty of options out there.

For more information on using an umbrella insurance policy or an LLC for asset protection, read “Should You Put Your Rental Properties in an LLC?

Choosing an Insurance Company

This is another one I can’t help you with because I’ve never had to shop for one, but I can tell you a couple considerations when looking for an insurance company.

  1. Shop around like you would anything else. Get full quotes so you can compare coverage amounts and limitations, and compare those coverage levels (and type) with the premium amount you have to pay for it. Compare and contrast the different offerings from the various companies you speak with.
  2. Here’s the tricky part, and with no solid solution — don’t just go off of the cost for coverage, or the best deal, if you will. What’s the #1 horror story when it comes to insurance companies? They bail out of paying out on a claim by coming up with some excuse as to why they don’t have to! This scenario is not worth saving a few bucks on your premium. Why do you think I pay a ton more to use USAA when I could get a significantly cheaper policy elsewhere? Because I know they pay and they pay fast. How to mitigate this with other companies, I have no idea. I think the best thing you can do is ask for referrals for companies other investors like and have an easy time dealing with (preferably ask someone who has had to file a claim!).

Related: Real Estate Insurance 101: How to Best Protect Your Investments

As I said, ask for referrals from other investors. It’s the fastest and probably best way to get pointed in the right direction. Or ask any agents or sellers or whoever you are working with if they have recommendations as well. Did I mention the BiggerPockets Forums are great for that?!

Hopefully this gives you at least a starting point when jumping into the lovely world of insurance! Sorry I can’t give you more details, but I’ve found that at least understanding the types of policies makes it much easier to focus on coverage details because you don’t have to stress out about trying to figure out what you are even looking at.

Any insurance experts out there or experienced investors with advice on insurance policies and companies? Or if you are on the other end of the spectrum, ask any insurance questions you have and let’s see if we can get them answered for you by other readers!

Leave a comment below, and let’s talk insurance!

About Author

Ali Boone

Ali Boone is a lifestyle entrepreneur, business consultant, and real estate investor. Ali left her corporate job as an Aerospace Engineer to follow her passion for being her own boss and creating true lifestyle design. She did this through real estate investing, using primarily creative financing to purchase five properties in her first 18 months of investing. Ali’s real estate portfolio started with pre-construction investments in Nicaragua and then moved towards turnkey rental properties in various markets throughout the U.S. With this success, she went on to create her company Hipster Investments, which focuses on turnkey rental properties and offers hands-on support for new investors and those going through the investing process. She’s written nearly 200 articles for BiggerPockets and has been featured in Fox Business, The Motley Fool, and Personal Real Estate Investor Magazine. She still owns her first turnkey rental properties and is a co-owner and the landlord of property local to her in Venice Beach.


  1. Ricky Williams

    I am not an expert on insurance either. Unfortunately, every “expert” on insurance I’ve met is trying to sell me something and convincing me that their brand or policy type is the right one for me to buy. That being said…

    My understanding of replacement cost (RC) versus actual cash value (ACV) is similar to what the author described if a house burns down. However, say the roof is ruined by a hailstorm and costs $10,000 to replace. The roof is 10 years old and is deemed to have a useable life of 20 years (according to some type of depreciation schedule). RC would pay $5,000 up front and the other $5,000 after inspection verifies repairs have been completed. ACV would just pay $5,000.

    If the roof is 20 years old – ACV pays nothing. It is at the insurance company’s discretion to decide that the roof was depreciated out per their table.

    While I would do similar to the author if a property burned down (take the money and not rebuild), I have chosen RC policies for the situations similar to my roof example.

    I look forward to following this thread.

    • Ali Boone

      Ricky, that’s great input and I’m curious if anyone can give info on that type of situation as well. The house burning down is obviously worst-case, but certainly smaller issues can come up. And yes, I totally agree about talking to insurance agents! Just like a lot of other professionals, it can be tricky to sift through to see who is legit and best to work with. But definitely great example with the roof, and hopefully someone will chime in!

  2. Michael Krizmanich

    Ali- as a licensed insurance agent for 26 years, and landlord. I have to say you are correct, you don’t know anything about insurance. ACV has no relation to market value. Replacement Cost is not a blank check – you still can be underinsured. You also failed to mention that liability policies exclude animal liability, which is something very relevant for a landlord.

    In this day and age of misinformation, you have helped contribute to it. Perhaps a quick fact check before your next article.

  3. David H.

    Sorry, Ali. This is the worst explanation of ACV vs. replacement cost. Depreciation isn’t that mysterious, so I’m not sure if you’re just being sarcastic given the engineering background. The burn-down scenario is partially correct. Michael and Rickey have good follow up notes.

    You can still rewrite this article, and we would be better off if you did.

    • Ali Boone

      Sorry you took it that way, David. My non-focus on depreciation is mostly because it’s not really the point, or the focus, on what investors are looking at in terms of deciding which policy to choose. Well, in terms of understanding the ins and outs of depreciation or how it works at least. Understanding it is part of it is good, but the details only help so much.

      If you are really well-versed on ACV vs. replacement cost, feel free to give some information! It would be helpful for all of us.

  4. Wow Ali, they were kinda touchy.
    I was just going to kid you about how many of your rentals have burned to the ground ? I like you am no expert on rates and policies but in my past I have had need of insurance including animal and even though I don’t like spending money the idea of losing because my position gets questioned is what keeps me paying more than I probably need to.
    L don’t want my insurance to get dropped if I have a claim and I know a few people who lost their coverage because they had a claim, the claim was paid but insurance was lost. I like my agent and his staff they get in touch just to review if my coverage is right for me. My Dad was in a risky business paid his insurance and never had a claim and was a strong advocate of it being money well spent, I have to respect that.

    • Ali Boone

      Good input Gary. Interesting put about the chance of losing coverage if a claim is filed (and kind of discouraging!). I agree with your dad, better to have it and not need it than to not have it and get in trouble.

      Would you be interested in providing more details on what kinds of things you have needed insurance for in the past? Is this on rental properties, I assume? You mention animal, but what else? Would be great info for everyone to consider as possible situations they may need the insurance for so they know to be sure those things are covered.

  5. margaret smith on

    Ali- I love the fact that, from wherever you are with your incomplete knowledge (that’s where most of us are!)– you are starting a discussion about insurance on our investments. Not only does it vary from state to state (I live in Florida, with very particular challenges due to flood and hurricane fears)- but the rules keep changing. There are so many exclusions in coverage now (dogs, slow water, mold, unlicensed contractor work in progress at time of claim, etc) that it is looking pretty rare that you would actually be able to make a claim and collect. Sometimes I just think the whole industry is a scam. And yet… do I dare “go naked,” as we call a decision not to insure? Liability is particularly scary not to have. Remember that if you ever want to get any kind of loan against your equity, you will have to be “fully insured,” according to a lender’s definition of that.
    So- Could the people who really know their stuff PLEASE chime in and help us with a few useful pointers? I’ll be checking back….

  6. Charles Marchiondo

    We have RCV (replacement cost) on all of ours because when we had ACV (actual cash value), we were extremely disappointed with what they said our damaged property was worth. It doesn’t cost much more and definitely covers what stuff actually costs when you go to repair it.

    I created a USAA account just to see what the price was and it is close to 400% higher. Yikes! $400 with American Modern and over $1600 with USAA for the same coverage! Might not seem like much if you only have 1 home, but multiply that out over 100 and you are paying more than $120,000 per year in premiums MORE. OUCH. We’ve had many claims with our company and they are good and fast.

  7. Jordan Rosario

    I`m no expert, however based on my experience handling insurance claims for a top insurer + being a (amateur) landlord, I can offer some input as a general overview:

    First, there are two types of insurance claims. Damage caused by catastrophe events, and the ones caused by everyday events. Catastrophe events (freeze, hail, fire, lightning, earthquake, flooding) do not affect your insurance premiums as they are reported “acts of nature” by the state you live in, but the number of claims in your “history” does get reviewed when deciding if continuing to extend coverage to your property.

    That being said, Actual Cash Value vs Replacement Cost policies:

    ACV policies will determine the market value/price of any of your damaged property that is insured. Contrary to popular believe, market values of your damaged property (from the shingles on your roof to your kitchen cabinets) are calculated fairly for material and labor in your specific zip code, every month. This means, for the most part, you will get a fair assesment of the value of the damage you have suffered. A check is issued to you for each nail in your home, but depreciation is taken into account.

    A roof that suffered damage might have cost you $10K to install, but if it`s been 8 years from when it was installed, ACV will calculate the depreciation (age & condition) of every item you report damaged (down to the nails on your roof). Insurance companies will calculate the appropriate value of your roof, and provide a settlement that will cover the damage (fair market value), minus depreciation.

    Replacement Cost policies will take things further. They will cover the damage that your -insured- property items suffered, and will also provide a fair market value to replace those items. Once you receive a check for the damage you`ve suffered, they will also estimate what it will cost to REPLACE the roof to its previous condition, and cover the cost to bring your roof back to pre-loss condition.

    In my opinion as a landlord, you have an asset that will provide you income when its performing. That asset cost you some effort, time, capital, and baby-sitting. I would assume that after you have purchased, enhanced, and rented your property, you are looking to build wealth with your investment.

    That investment only generates profits when rented. If you choose a ACV policy and damage occurs to your property, you will be reimbursed for the fair market value of the insured items that suffered damage. That means you will have a check in your hands for the damage you suffered, but no checks will arrive to take care of that damage.

    This policy is effective, but will not bring you back to a new roof. It will not provide you peace of mind knowing that a few weeks later, your damage is going to be taken care of, paid for, and your tenant is continuing his agreement with you.

    As a landlord, I want my units to run smoothly and don`t want any surprises to eat my profits that have taken time to compound. Try calculating the cost of half a roof, rear siding, and a deck that might have been hit by a falling tree because it was snowing for a few weeks V.S. the time it has taken your tenants to amass that same amount in profits.

    Personally, the cost of a $12,000 replacement estimate from a contractor is not provided by my tenants as fast as he hands that estimate to me. Replacement Cost policy gives me peace of mind that if anything happens, I`m not provided half of what it will take to bring my property back to normal, but will solve the whole problem, leaving me with resources (and time) to continue handling my business, a.k.a. more properties!

  8. Barbara Lindley on

    Insurance coverage is very tricky. It is imperative when disaster strikes that you recover your losses. That is what you paid for every month prior to the loss. To INSURE, that you would be able to do just that recover any losses you may incur. It certainly seems simple enough. On the surface. I paid. I’m covered. My insurance company said so. Right? Well, folks that is what you call gilding the lily. Because the bottom line is this. Insurance companies are not in business to make friends or, protect anyone from loss. They are in the business to make money. Plain & simple! It’s the almighty dollar they are interested in. So, lie to you? Indeed they will. Confuse & disorient you with insurance jargon? Indeed they will.
    Sell you inadequate policies? Indeed they will. Twist & finagle the facts to reduce your claim payout? Indeed they will! And, they do it every damned day! All across the country. Right now, there is somebody out there at the mercy of a insurance company’s integrity. Without the knowledge of insurance legalities, in which the variables are infinite, most of us will come out on the short end of the deal.
    Little know fact & something insurance agents won’t tell you is this. You have the right to hire an independent claims adjuster. This person works for YOU! They are your BEST option to a successful result.
    If you ever are faced with major loss of insured property. DO NOT FILE A CLAIM ON YOUR OWN! Talk to a private adjuster first. The financial benefit alone is worth it but, what I found to be the greatest aspect of hiring Carolyn Rae of Professional Claims Management in Phoenix Arizona. The day after one of our rental homes was destroyed by fire. Was that she went to bat for us against the insurance company. They used every tactic in the book. Yet, she prevailed victorious & we never had to do a thing but, deposit checks. She handled everything! She was a joy to do business with & a true inspiration of professional integrity. Where ever you are in America, if you have an insurance claims issue. Do your self a favor & call Carolyn! She can help you & indeed she will. Count on it!

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