replacement vs cash value insurance - Landlord Forum thread

replacement vs cash value insurance by Nicole (PA) on May 16, 2012 @12:49

I read somewhere that a cash value policy on investments is better than replacement and I'm not fully understanding. Any insurance experts here?

if it's a partial loss, replacement value brings you back to where you are prior to the loss. actual cash value takes the replacement value and then depreciates. Rough example - tenants burn up the kitchen in a 50 year old house w/25 year old original kitchen. Cost to gut & replace the kitchen is $50,000. Replacement value gives you the $50,000. Cash value somehow uses some type formula to calculate replacement cost less depreciation making thta 25 year old kitchen worth not very much money in today's dollars.

in the case of a total loss, don't most replacement value policies say you must rebuild? If so, taking the entire replacement value less demolition & costs to fill in the hole in a 25' city property and walking away with the diffrerence isn't an option.

Going to call the insurance man tomorrow but wanted to attempt to get a better grasp of this first.

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Re: replacement vs cash value insurance by Micah on May 16, 2012 @12:59	[ Reply ]

Replacement value is what you usually want. That allows you to put up a comparable building. Cash value is more arbitrary and can screw you over when you need to rebuild. The actual cost per year difference is worth it. A LL in my neighborhood got screwed over because he didn't have replacement value. All he could afford was to cap everything and fill in the site after the gas line exploded in his house.

Re: replacement vs cash value insurance by Jake on May 16, 2012 @16:49	[ Reply ]

"if it's a partial loss, replacement value brings you back to where you are prior to the loss." There is a limit as to what your policy will pay. You are not garanteed that the pay out will be enough to completely restore a policy holder's property to the level before the loss. You will be paid what the insurance thinks is enough.

getting a professional valuation by Julie in PA on May 18, 2012 @22:28	[ Reply ]

I am in the process of shopping for new insurance for my rental properties. What I have now is cash value and I want replacement value. The agent gave me a quote based on what he says it would cost to rebuild but I thought it was low. I find it hard to believe that you can build a 3700 s/f brick building with 5 bathrooms, 5 kitchens, all hardwood floors,slate roof, etc. for $400,000. He gave me the number of a company that does valuations and guarantees them for 10 years for $50 per year. The price was high...$1000 for 12 units but I think I'm going to go with it so that I have the proper amount of insurance.