Replacement Cost vs. ACV: Essential Insurance Requirements

Rule

All hazard insurance policies for Lendency DSCR loans must be written on a Replacement Cost (RC) basis. We require coverage equal to at least 100% of the insurable value of the improvements as determined by the insurer. Actual Cash Value (ACV) policies are not permitted.

Lendency Insight

The difference between Replacement Cost and Actual Cash Value is depreciation. An ACV policy subtracts the age and wear-and-tear of the property from your claim payout. If a 20-year-old roof is destroyed, an ACV policy pays only what that old roof was worth today—leaving the investor to pay the massive difference for a brand-new roof. At Lendency, we require Replacement Cost to ensure that in the event of a total loss, the property can be fully restored without a funding gap. This protects the equity of the property investor and the collateral of the lender.

Common Scenarios & FAQs

• Why is my premium higher for Replacement Cost? Because the insurance company is taking on more risk by promising to pay for "new" materials regardless of the property's age.

• Can I use the "Loan Amount" as my coverage limit? Only if the loan amount is higher than the Replacement Cost.

Key Definitions

• Replacement Cost (RC): The cost to rebuild or repair a property with materials of like kind and quality at current prices.

• Settlement Basis: The formula used by an insurance company to determine how much money you receive after a loss.