Everything you need to know about real estate insurance
WHAT’S THE DIFFERENCE BETWEEN REPLACEMENT COST VALUE (RCV) AND ACTUAL CASH VALUE (ACV)?
There are 3 different ways to value your building 1) market value 2) Replacing Cost Value and 3) Actual Cash Value. Market value means the price that the building would or could be sold at in today’s real estate market. For example $1,000,000. Replacement cost value is the actual price that it would cost you to rebuild your building in today’s construction market. For example to replace your building from the ground up today it would cost $1,250,000. Actual cash value is the replacement cost amount minus depreciation. So in our example it would be 1,250,000 – 30% (example) = $875,000. Therefore when buying insurance for your building it is important to discuss with your broker which one is the best coverage for your property. Insurance shouldn’t be valued by market value. Best is to insure your property at replacement cost. Only in situations where replacement cost in not available you should go with ACV.