Market Value vs. Rebuild Value: The Insurance Mistake That Costs Investors Thousands
Summary
This article from BiggerPockets discusses the importance of ensuring your short-term rental property insurance coverage is based on rebuild value, not market value. It explains how underinsuring your property can lead to significant out-of-pocket costs in case of a total loss. Hosts should review their insurance policies annually and report any property upgrades to ensure accurate coverage.
Key Insights
- •Market value and rebuild value have almost nothing to do with each other; market value reflects what a buyer might pay while rebuild value reflects what it would cost to reconstruct your property after a total loss.
- •When your insured value doesn’t match the true rebuild cost, you face two major problems: underinsuring and overinsuring.
- •Carriers base coverage on rebuild value, not market value.
Action Items
- ✓Review your policy every year to ensure coverage matches current rebuild costs, inflation hasn't pushed pricing beyond limits, and any recent claims, improvements, or occupancy changes are reflected.Effort: lowImpact: medium
- ✓Report renovations, upgrades, and additions, as they directly affect rebuild value.Effort: lowImpact: medium
- ✓Verify construction details for accuracy on your insurance policy’s declarations page.Effort: lowImpact: medium
Tools & Resources
- →NREIG: NREIG is mentioned as an investor-focused insurance partner.
Watch Out For
- ⚠Underinsuring your property for its rebuild cost can leave you with the responsibility for the difference during a total loss.
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