Insurance coverage replacement vs. actual

[Jamie Wheeler]

Hello all,

I'm a new member and this is my first post. So I have a property 2BR/1BA I paid cash for. It's a fixer upper for sure. I purchased it for $40k and plan to put about $5k - $10k into it for a ARV of $75-$85k. So my question is on insurance. My mom has about 9 rentals and she goes cheap on insurance. Most of her houses are comparable to a little lesser quality than what I'm hoping to get mine up to. She only insures for the coat she has into the property. I've got a quote from her insurance guy saying he could cover it for $50k max as is and maybe a little more when I fix it up. He quoted me $255/year for $40k coverage so I would assume about $300/year for $50k. I've got another quote through my auto insurance and they do quotes for replacement cost. They are quoting me $1,050/year for $186k coverage. I think what I could get/do a nice replacement would be closer to $125k- $150k max with hiring out contractors to do everything. They do not agree and say they can't bring it down any further. I would really like coverage closer to $100k - $125k because that's what I think I could get it done for.

Please let me know your thoughts/experience on if I should go cheap to save more money each month and only have a chunk of money to rebuild with if it were to burn down, go expensive so that if anything were to happen, I would have a much nicer house rebuilt, or keep shopping around for something closer to what I want on coverage?

The house is in a good neighborhood and it’s the worst house on the block. So rebuilding a much nicer house would be what I’d plan to do regardless of policy.

[Chris Seveney]

@Jamie Wheeler

If you only insure it for what you have into it and not replacement value just be aware if their is a complete loss you won’t what you insured it for.

Example:

If you insure it for $50k and replacement value is $100k. You are under insuring it for 50%.

If there is a complete loss because you underinsured it by 50%, you would get $25k from the insurance company not $50k. (Plus you would have to minus your deductible)

Lookup coinsurance clause