Multi-Family Insurance Question - Replacement cost/Repair Cost

[Luis Silva]

Hi all, 

I hope all is well! Thank you for taking the time to review my post. I have an insurance related question. Please see below:

Property type: 3 Unit

Location: Kansas City, KS

Year built: 1911 (older property)

Facts: When I closed on the property, the lender required that I obtain guaranteed replacement cost insurance. This was very expensive...roughly $3k per year. Anyhow, several months have gone by and now the loan was resold to a new loan servicer. I reviewed the insurance requirements for the new servicer and it appears that they will allow a repair cost policy. 

Question: I quoted out a repair cost policy, and it is approx $1500 per year (nearly half the cost). That said, the insurance agent stressed to me that the repair cost is different than replacement and it is paid out as "cash value." In other words, if I were to file a claim, then the insurance company would assess the work, see what the repair cost would be, then depreciate the value to come up with the "cash value," and then may me that portion. 

Is this typical? Would you recommend keeping the better policy or do most people use the repair cost policy that pays cash value? Pros vs cons? 

Any input would be greatly appreciated. This would reduce my expenses by $125 per month which would be great, however, I don't know if the policy has adequate coverage. 

Thanks a bunch !