Apartment insurance question cash value or replacement cost?

Question

Account Closed · Answer

@Andy N. Actual Cash Value "ACV" is almost never used in quality apartment complexes. The cost savings is minimal you are at the mercy of the adjuster and have substantially limits coverage for roof damage (roofs are depreciated around 7% a year meaning you are out of pocket for 45% of a 7 year old roof).

With agreed value you and the insurance company agree to a value of the property before the policy is issued, In the event of a covered claim you will receive the cost to replace anything damaged up to the agreed value amount. @Dennis Tierney regarding old unique buildings many insurance companies will agree to a value that represents a replacement cost using current construction methods which can be more cost effective the using ACV.

Mike Dymski · Answer

If you end up with anything aside from replacement cost, be sure to discuss the implications with your agent on what happens with the reimbursement of regular claims (i.e. do they get haircut by some % below replacement cost).  You also have to consider if you have just one or separate buildings and, if separate, what would happen in the case of the loss of individual buildings and not the full property.  Very few insurance claims are a full catastrophic loss.  It's silly to have to pay for full replacement cost on older buildings where you would not rebuild in a catastrophic loss but there are scenarios that have to be factored in as well.

Account Closed · Answer

Either way make sure you get rent loss coverage, Most times you will not loss the whole building but you may lose all the tenants and the mortgage is due each month.

Dennis Tierney · Answer

@Andy N. I have found my lenders don't require full replacement cost. They just want their loan amount covered so they can get their money out. I cover to the total cost we paid. I find full replacement cost generally is prohibitively expensive, for instance we bought a property in 2012 that is a rehabbed school that is all brick and will outlive me and my children. They don't make them like that any more and the full replacement is twice what we paid. If we would have insured to replacement we would have no cash flow.

Darryl Dahlen · Answer

The lender should be giving you instructions on what coverage you need or are you not using a lender?

Abou C. · Answer

great question, I am in the market for a 50+ unit. Look forward to the answers @Andy N.

Apartment insurance question cash value or replacement cost?

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