Take the Money and Run

 No, not the 1976 song by the Steve Miller Band but the money after a loss on your apartment building.

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A couple of weeks ago, one of my customers referred his brother-in-law to me for a quote. The brother-in-law was purchasing his first income property, a single-family dwelling in a Cleveland suburb. I gathered the information I needed to prepare the quote. The next day I called the prospect and presented the quote and explained that we were insuring the investment property for $320,000.00 at $1250.00 per year.

The prospect quickly told me he had another quote for $1100.00 and the property was insured for the purchase price of $250,000.00. Knowing the replacement cost was well above the purchase price I asked the prospect what he would do if there was a total loss on the property and did not have enough money to rebuild the home. After a minute the prospect said “I would take the money and run and sell the lot.”

Most landlord policies (dwelling fire) do not offer a cash out option so the plans of the prospect would not work and he would have been paying a big portion of a loss out-of-pocket. After explaining this to him, we closed the deal the next day at the proper rebuild cost of the home of $320,000.00.

For the owners of apartment buildings or for landlords who have a large inventory of single-family dwellings, there are other options. The commercial package policy will provide you with the option to take the money and run. Two common ways to value your commercial buildings are replacement/rebuild cost or Actual Cash Value (in the simplest of terms replacement cost at the time of loss minus depreciation).

The standard building and personal property coverage form say the company will pay the value of the lost or damaged property. The policy does not say you need to rebuild the property to recover from the loss. However, the policy does continue, and explains in order to receive the replacement cost of a loss you must rebuild/repair the damage. This limitation does not stop you from taking the Actual Cash Value from the loss and taking your money and running.

In reviewing your options in insuring rental units, you see how it can become very confusing, so before you purchase your first property or renew your current policies contact the Trusted Choice Insurance professionals at Richey-Barrett.

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