Most landlords insure their building for what they paid or what the county assessed. Both are wrong, and both can leave you short after a fire.
The number you want is replacement cost: what it costs to rebuild today.
Purchase price includes land and market timing. Land doesn't burn, and insurance doesn't rebuild a market.
Assessed value runs low on purpose and ignores construction costs. Use it as a rough check, nothing more.
The co-insurance penalty
This is the trap nobody explains, and it bites even on small claims.
Most policies require you to insure the building for at least 90% of replacement cost. Fall short and the insurer cuts every payment by the same proportion you were underinsured.
Here's what that looks like:
Rebuild cost: $1,000,000. So you should carry at least $900,000.
You insured it for $600,000 to save premium.
A kitchen fire does $200,000 in damage. Well under your limit, so you'd expect it paid in full.
Instead: you carried two-thirds of what you should have, so you get two-thirds of the claim. About $133,000. You eat the other $67,000.
Underinsuring doesn't just hurt at a total loss. It hurts at every loss.
RCV vs. ACV
Replacement cost (RCV): pays to rebuild with new materials. This is what you want.
Actual cash value (ACV): pays replacement cost minus depreciation, so an old roof pays out a lot less.
We default to RCV. Some carriers only offer ACV on older buildings. If that's yours, you should hear it up front, not at claim time.
