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Will an insurance company let you underinsure a home?

Do insurance companies allow you to significantly underinsure a rental property? I wanted to insure an investment property for $90,000 instead of the replacement cost estimate of $160,000.

Dec 19, 2023 Lexington, KY

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Nathan Foster

Agency Trainer

Credentials
  • Licensed Insurance Agent - Property and Casualty

Nathan is an insurance professional with a focus on creating positive customer experiences with more than 10 years of industry experience.

Nathan tra…

Thank you for reaching out to The Zebra! Every insurance company is a little bit different. Most will not allow you to insure a home underneath its replacement cost. Here at The Zebra, we do not sell any home or rental properties for less than their replacement cost. 

One option that might fit your needs to is find a local agent who has access to write an insurance policy at actual cash value (ACV). Actual cash value means that your home is only insured to its value minus depreciation for the age of the home.

This type of coverage will not allow you to replace your home if you have a total loss. What this means is you will not have coverage to replace the home and restore it to its original value. You would only have up to the amount listed on your policy for any (and all) repairs on a claim. In your specific situation, you'd only get $90,000 for a home that would cost about $160,000 to replace. This isn't usually an ideal situation for homeowners, so it's important to understand exactly what you're getting from your insurance policy.

Replacement cost value (RCV) covers the cost to actually replace the home. RCV doesn't consider depreciation, and you can generally get similar like/kind items to that which you've lost. Sometimes historic or unique homes may have extenuating circumstances where they can't be insured for the full replacement cost.

This might be a good time to reevaluate, get new quotes, and look at other options to insure your rental property. As a landlord, it's important to protect your investment even if you aren't the one living in it!

If you'd like to explore additional homeowners coverage options, give The Zebra's agency a call at 888-444-8949.

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