6 Replies

I'm buying my first multi unit its 4-3 plexs built in 1950. My question is on the insurance should I insure them for Replacement or Actual Cash Value? 

I'm not an insurance agent, but I have asked this same question to a couple of them.

The general answer is this:  What would you do if you had a total loss?  would you rebuilt on this property or take the money, level the lot, and buy something/ somewhere else?

Where I'm currently investing, We can buy properties for approximately 25% of the rebuild cost.  So I can buy a decent duplex for $75,000.  Building a new duplex would cost me $300,000.  In this case, I would insure the property for ACV which would probably be 150k to 175k.  If I had a total loss, I would take the 125k to 150k depending on the "depreciation" they give me when the adjuster comes out for the roof, heating system, etc. and just go buy another duplex in the area for a similar $75,000 or maybe buy a larger property with my $125,000.  I wouldn't rebuild because I can easily buy similar duplexes for much less money.

If you are in an area where the land itself is worth as much as the buildings on the land, then I would insure it for Replacement cost, because if you have a total loss, you would want to rebuild at that same location.

Hope this helps.

@Mark Paup Its a matter of risk tolerance. However, your generally better off at replacement cost, without co-insurance if at all possible. 

I am an insurance agent with 23 years experience in Florida.  I would ask for the price of both ACV and Replacement cost.  What you will probably find is there isn't much difference in cost.  Also, with an older property, they will depreciate it more if you choose ACV.  

Also, make sure you have enough coverage on the building to re-build the property at TODAY'S prices.  If you underinsure the property, you might be subject to a co-insurance penalty, which will be significant!  

Feel free to ask me any more questions you might have!

Bought my first duplex searching around for insurance the best I can come out with is $1800 a year this does not sound good hurts my bottom line

Checked my homeowners insurance company; my business insurance company; called a few other insurance companies. ???? Thx Joe

actual cash value = replacement cost - depreciation.

Things to consider:

  • the older the house (usually) the greater depreciation
  • In the event of a loss, ACV is typically a longer and less clear cut process to determine the insured value and therefore the amount received by the insured to rebuild/walkaway. 
  • @Aaron Vergason gave a great description of the practical thinking behind purchasing RCV vs ACV -- comes down to value of land vs value of property.  
  • @John Darr is also correct that pricing is usually striking similar despite far higher coverage amounts usually associated with RCV
  • Finally, before you decide ACV, ask your agent/carrier how they determine the depreciation rate--I have see that vary depending on carriers and in older properties, that can create an immensely different amount of coverage very easily.  

Best of luck

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