Multi Family Insurance - Replacement Cost vs Actual Cash Value

3 Replies

Hi BP!

I have a question for you. My insurance Agent gave me two options to ensure my Duplex:

1) Replacement Cost

- if building is damaged the company buys the cost to replace the item

including current labor and material cost

- for example, if a fire occurs and kitchen is damaged and to fix it cost is

$10,000 the company would pay the $10,000 less your deductible

- if you want REPLACEMENT COST coverage you need to insure the building

for what it would cost to rebuild the building from ground up based on today's price for labor and materials

- Company replacement cost estimator shows it would take $328,000 to build the build like it is

2) Actual Cash Value

- this is similar to MARKET VALUE or Replacement Cost less Depreciation for age

- for example, kitchen fire again and to REPLACE the cost is $10,000, however if you

have Actual Cash Value coverage company would depreciate for the age and may reduce

claim with 30% depreciation, so payment would be $10,000 less $3,000 depreciation leaving

payment of $7,000 less deductible

Can you tell me what type of insurance you have? What are the pros/cons of each type?

Thanks as always!

- Tom

I was faced with the same issue.  I looked at it this way, I hold a day job which provides my income to live, so, I decided that right now I will only opt for the Actual Cash Value option.  When I get to the point that my rentals are providing the income to live and I am no longer working a day job, then I will opt for the Replacement Cost.

@Tom Lipps

I'd say it depends on the market and your plan for investing. 

I have replacement cost on my policy just to make sure in case everything is destroyed I can rebuild and have a brand new building in place. 

Thanks for the feedback! My gut leans towards Replacement Costs (rather safe than sorry), but my ROI leans towards "Actual Cash Value" :-) I also have an umbrella policy. I need to speak to my agent to understand how that plays into this discussion..

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