"How to insure rental properties for actual value"

Member since 2025 · 1 post · 0 votes

I am a landlord with rural (read low value) apartment buildings which are in reality worth a fraction (like a quarter) the replacement costs computed by insurance companies. So the problem I end up with is for example a 1m building where every insurer either declines to insure it or will only insure it at like 4m. This creates exorbitant insurance costs. Does anyone have any advice on how I can get a policy that is based on the actual value of the building?

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Andrew Bish

Insurance Agent · Chicago · Member since 2025 · 46 posts · 38 votes

9mo

Have you reviewed the RCE run by the agents? While you should be able to find an ACV policy with a broker who has access to the excess and surplus markets, replacement cost is not market value. It is the cost to pay people to pull the debris of the land and rebuild the structure in like kind and quality. While the real estate value may be lower in a rural area, it is more expensive to send materials and laborers there. Also materials used and age of structure impact the overall replacement.

Chris is right to point out the increased out of pocket cost. When insuring your structure below the estimated replacement cost (or as low as 80% depending on company), the insurance company expects you to take on a portion of the cost in the event of a claim. This is usually called the co-insurance clause. This reduces your payout based on percentage coverage carried and full replacement cost.

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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
9mo
First question is do you have a mortgage on the property? If so, then the lender wil require you to insure at replacement cost - which if less than loan amount may go as low as loan amount BUT recognize in those instances, lets say its replacement value is $250,000 and you insure it for $125,000. IF you filed a claim, insurance would only cover 50% of the damage, so if it was $100k in damage you would get $50k from insurance since you are under-insured
If you have no mortgage, you can do what you want, but once you have a mortgage you have to insure per the lenders requirements.
(note I am not an insurance agent nor providing insurance advice)
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Andrew Bish
Insurance Agent · Chicago · Member since 2025 · 46 posts · 38 votes
9mo
Have you reviewed the RCE run by the agents? While you should be able to find an ACV policy with a broker who has access to the excess and surplus markets, replacement cost is not market value. It is the cost to pay people to pull the debris of the land and rebuild the structure in like kind and quality. While the real estate value may be lower in a rural area, it is more expensive to send materials and laborers there. Also materials used and age of structure impact the overall replacement.

Chris is right to point out the increased out of pocket cost. When insuring your structure below the estimated replacement cost (or as low as 80% depending on company), the insurance company expects you to take on a portion of the cost in the event of a claim. This is usually called the co-insurance clause. This reduces your payout based on percentage coverage carried and full replacement cost.
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- Owen RosenBusiness Member
  Professional · Clinton Township, MI · Member since 2015 · 676 posts · 259 votes
  9mo
  Quote from @Andrew Bish:
  
  Have you reviewed the RCE run by the agents? While you should be able to find an ACV policy with a broker who has access to the excess and surplus markets, replacement cost is not market value. It is the cost to pay people to pull the debris of the land and rebuild the structure in like kind and quality. While the real estate value may be lower in a rural area, it is more expensive to send materials and laborers there. Also materials used and age of structure impact the overall replacement.
  
  Chris is right to point out the increased out of pocket cost. When insuring your structure below the estimated replacement cost (or as low as 80% depending on company), the insurance company expects you to take on a portion of the cost in the event of a claim. This is usually called the co-insurance clause. This reduces your payout based on percentage coverage carried and full replacement cost.
  
  Even without co-insurance, it's important to point out that Actual Cash Value policies will typically pay out depreciated value for partial losses.
  So, you have a kitchen fire that will cost $100,000 to repair but since the kitchen was 30 years old you might get a $25,000 settlement and have to pay for the rest of the repairs yourself.
  Most real estate investors are totally fine with ACV on total losses since they often won't rebuild anyway but I've found they often don't consider partial losses which are much more common to begin with.
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Rod HanksBusiness Member
Insurance Agent · Dallas, TX · Member since 2013 · 743 posts · 462 votes
9mo
@Trisha Suek

Carriers rate based on replacement cost (what it costs to rebuild new), not what you could sell the building for. The ways around this are usually: (1) switch from replacement cost to actual cash value (ACV) or functional replacement cost, so the insured value better matches the real economic value, and (2) use an agreed value/stated amount endorsement so the company agrees up front to a lower limit without hitting you with a coinsurance penalty. If there’s a lender involved, they may be the ones forcing the high limit, so it’s worth confirming what they truly require in writing.

A good independent agent that understands older, rural apartments can often write ACV or functional policies with higher deductibles to keep premiums reasonable, as long as you’re comfortable self-insuring some of the risk and understand that a total loss payout will be capped at that lower limit. Please reach out if we can help. We are licensed in most states and would love to help.
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