In the event your real estate investment property sustains a loss, it is important you know how much your insurance policy will pay. In order to understand how much of a loss your insurer will pay, you must first determine if the policy is a replacement cost or actual cash value policy. The difference between these two valuation methods is significant in the event of a loss.
- Replacement Cost – this is the cost to replace the damaged property on the same premises with other property of similar quality used for the same purpose. Essentially replacement cost pays to replace the damaged property as if you paid to replace it today.
- Actual Cash Value – this is the depreciated value of an item of property at the time of the loss. Actual cash value pays the insured an amount based on what the item could sell for in a secondary market, such as a garage sale. Given that actual cash value only pays after deducting depreciation, it is often less preferred than replacement cost.
Understanding the differences between replacement cost and actual cash value is important in the analysis of your real estate investment insurance policy. Given that replacement cost coverage offers more coverage than actual cash value, it also has a higher premium. Real estate investors need to know the pros and cons of each option based on their situation. We are here to help you review your policy form to ensure it is as comprehensive as possible for a reasonable price.
REI Choice is the bi-product of a seasoned real estate investor and successful insurance executive. The ideation behind the company began in 2017 from a chance introduction and a combination of two unique visions. We are located in Dallas, TX. We are a licensed insurance agency in the State of Texas. We are able to offer these products nationwide via Arcana Insurance Services, LP.
TJAW, INC DBA REI Choice Insurance
519 East Interstate 30
Rockwall, TX 75087