Do Apartment Building Owners Need Replacement Cost Coverage?
- Nate Jones, CPCU, ARM, CLCS, AU
- Jan 21
- 2 min read
When purchasing apartment property insurance, one of the most important decisions owners face is whether to choose replacement cost coverage or actual cash value (ACV) coverage. For most apartment building owners, replacement cost coverage is strongly recommended, especially in today’s rising construction‑cost environment.
Here’s what apartment owners need to know.
What Is Replacement Cost Coverage?
Replacement cost coverage pays to rebuild or repair your apartment building using current construction costs, without deducting for depreciation. In contrast, actual cash value coverage subtracts depreciation based on the age and condition of the building, often resulting in significantly lower claim payouts.
Why Replacement Cost Coverage Matters for Apartment Buildings
Apartment buildings are particularly vulnerable to under insurance. Construction materials, labour, and code compliance costs have increased dramatically in recent years. If your building suffers a major fire, storm, or water loss, ACV coverage may leave you with a payout that is insufficient to rebuild.
Replacement cost coverage helps:
Avoid large out‑of‑pocket rebuilding expenses
Maintain property value
Protect long‑term cash flow and financing relationships
Satisfy lender insurance requirements (many lenders require replacement cost)
How Replacement Cost Affects Insurance Premiums
Replacement cost coverage typically costs more than ACV coverage, but the difference is often modest compared to the financial protection it provides. Under insuring to save premium dollars can lead to six‑figure gaps after a claim.
Many insurers also apply coinsurance penalties if the building is not insured to its full replacement value.
Is Replacement Cost Always Required?
While not legally required, replacement cost coverage is considered best practice for:
Apartment buildings with mortgages
Properties in disaster‑prone regions
Older buildings subject to code upgrades
Some owners also combine replacement cost with ordinance & law coverage to address post‑loss code requirements.
Get the Right Coverage for Your Apartment Building
Choosing the right coverage limits requires experience in multifamily insurance. Wexford Insurance works with insurance companies that insure apartment buildings nationwide and helps owners determine proper replacement values and coverage options.
👉 Request your apartment building insurance quote today at Wexford Insurance
