Replacement Cost vs Cash Value Policy
I'm under contract for my first multi-unit property in the Metro Denver area. It's a 9 unit building, and the process is going well so far. The building is older (1940's), but with a mix of newly updated units and some units that haven't been updated in a while.
I'm currently looking at two quotes for insurance. One is a cash-value policy, the other is a replacement cost policy. The replacement cost policy also has $120K of business interruption insurance, where the cash-value policy only has $50K.
I like the idea of replacement cost coverage, as the depreciated value of a lot of the building will be very low. I'd be really annoyed if there was a loss, but the insurance adjuster came in and said the unit was 80% depreciated.
However, the difference in premium is pretty large. The cash-value policy is $3.7k/yr, and the replacement cost policy is $7.2K/yr. This is the difference between running the building at a ~5.5 cap-rate vs. a ~5.8 cap-rate.
I know most on this forum would opt for the less expensive policy. Is there anyone that has gone with a cash-value policy and regretted it? What would you do?