ACV or replacement cost on SFHs?

2 Replies


The questionj is a common one when in Insuring Real Estate. The purchase price is driven by the rental rates not what it would cost to replace the building. Insurance companies offer three ways to value a building for insurance:

1. Replacement Cost: The cost to rebuild the structure with the same kind and quality at the time of loss

2. Actual Cash Value: The Replacement Cost minus the depreciation (tracks with the market value of the building only not the land)

3. Agreed Value: a value agreed on by the company to be the value being insured. Much less commonly used.

Most Personal policies (Homeowners & Dwelling Fire) from the companies providing the best rate (on a per $1000 of coverage basis) will be written on Replacement Cost. You can get the policies written on Actual Cash Value (ACV) but it is often from a specialty or non-standard market.

If you do go with an ACV based policy remember, a partial loss will be paid with a deduction for depreciation. Also, if there is a Coinsurance Clause you need to have a limit that adequate or you could face a penalty. If you have an 80% coinsurance clause, you need to have a limit at the time of loss that is 80% of what the ACV should be. If, at the time of loss, the company determines the ACV of the building is $100,000 your limit needs to be $80,000 or more. If not the claim payment is reduced.

Good luck on the search and feel free to PM me if you have any questions on the above.

@Robert Naucke Jr I would suggest that you first determine how much out of pocket you are willing to pay if there is a claim.  Once you can communicate that to an agent, they should be able to tell you which coverage will give you those results with your type of portfolio. 

As a general rule of thumb,

If you are not willing to pay more than $2,500 out of pocket when you have a fire, then Replacement Cost will be the only option that can realistically deliver that result.

If you are willing to pay 50% of any property claim, no matter the cost, you can consider ACV.

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