Hey guys, David here. As a property manager in New York, one of the big decisions I face with every policy renewal is whether to insure my buildings for full replacement cost or go with actual cash value (ACV). It’s a question I asked my broker early on: Do I really have to insure for replacement cost, or can I just choose ACV to save money?
Here’s what I found out.
Replacement cost means the policy will pay to repair or rebuild your building with new materials of like kind and quality—without deducting for depreciation. So if your 30-year-old roof gets damaged, you get the cost of a new roof (minus your deductible). This is usually what lenders require if you have a mortgage, because it ensures the building can actually be restored after a loss.
Actual cash value, on the other hand, pays replacement cost minus depreciation. That same 30-year-old roof? The insurer will factor in its age and condition, and you’ll get far less money to replace it. ACV policies come with lower premiums, but the payout can leave you with a huge gap if something major happens.
Most carriers and banks strongly prefer replacement cost—sometimes they won’t even offer ACV unless it’s for special situations, like very old or vacant buildings. And from a property manager’s perspective, replacement cost just makes more sense. If you’re responsible for tenant safety and building operations, you need the funds to bring the property back to life after a loss.
That said, ACV could be an option for properties you own outright that you’re not as worried about, or for structures that wouldn’t justify a full rebuild. It all depends on your risk tolerance.
For me, I stick with replacement cost on the properties I manage. It costs more upfront, but it gives me peace of mind—and it keeps my tenants and owners happy knowing the building can be fully restored if something goes wrong.
If you’re unsure whether replacement cost or ACV is right for your buildings, give The Sarrica Group a call at 516-277-0812 or request a review online: Request a Quote Here.