Understanding Total Insured Value and Insured To Value in REI Insurance 

As a real estate investor, it’s important to understand the various insurance concepts that contribute to protecting your properties. Two key terms you’ll encounter in the NREIG Program are Total Insured Value (TIV) and Insurance To Value (ITV). These concepts play a significant role in how your properties are insured and the potential payouts you could receive in the event of a loss.  

What are TIV and ITV?

The Total Insured Value (TIV) of a location represents the combined coverage amounts on that one property policy. It includes Dwelling, Contents, Loss of Rents, and Other Structures. Essentially, TIV is the maximum amount that would be paid out in the event of a total loss claim for the property.  

Insurance To Value (ITV) is an amount specifically pertaining to the Dwelling coverage stated in the property policy. Unlike TIV, ITV does not include other coverages and focuses solely on the amount of coverage for the physical structure itself.   

Why are these concepts important? 

TIV provides a complete picture of the total property insurance coverage for a given location. It informs NREIG, carriers, and you, the investor, of the maximum amount of insurance being provided to any one property. Your TIV value indicates the highest payout you could receive should that property suffer a total loss.   

ITV ensures that the Dwelling coverage accurately reflects the value of the physical property. It also determines the maximum payout you could receive for the physical property alone in the event of a partial loss.  

How are TIV & ITV Values Determined? 

TIV Calculation: TIV is calculated by adding the Dwelling, Contents, Loss of Rents, and Other Structures coverages together. For example, if the Dwelling coverage is $245,000, Contents is $5,000, Loss of Rent is $5,000, and Other Structures is $5,000, the Total Insured Value of the property would be $260,000.  

ITV Calculation: ITV is based on our Program minimums of $75 – $119.99 per square foot for Actual Cash Value (ACV) and $120 per square foot for Replacement cost (RC) coverage. To find the ITV, divide the Dwelling coverage amount by the square footage of the property. For instance, if a property is 2,000 square feet and the Dwelling coverage amount is $250,000 the ITV is $125 per square foot.   

Minimum TIV/ITV Requirements 

Minimum TIV and ITV requirements are typically set by the insurance carriers, although sometimes NREIG may have a say. These values are based on factors such as the cost of materials in the area and any associated risks. Certain areas of the country, like coastal towns in Florida, may have higher minimums due to specific risks and underwriting requirements from the carrier.  

Consequences of Underinsuring

Failing to meet minimum TIV/ITV requirements can have significant consequences. The most notable is encountering the Coinsurance provision in the property policy. Coinsurance is a clause that reduces the claim payout if the property is underinsured. This provision requires maintaining a certain percentage of coverage (commonly 80%, 90%, or 100%) of the total property value at the time of loss. If a property is determined to be underinsured, a claim payout could be substantially reduced.  

Please note: In the NREIG Program, minimums are set to ensure you never risk underinsuring and encountering the Coinsurance provision. 

Example Scenarios

Consider an investor with Property A: The Property is insured with a TIV of $250,000. This includes $240,000 for the Dwelling, $5,000 for Loss of Rents, and $5,000 for Other Structures (a detached garage). The property is 1,500 square feet, making the ITV $160 per square foot. In the unfortunate event of a kitchen fire that destroys both the property and the detached garage, the maximum payout would be $250,000, covering the dwelling, lost rental income, and the detached garage.   

Let’s say Property B has the same TIV, coverage amounts, and square footage. A kitchen fire occurred but thankfully did not spread to the detached garage and was contained enough that the tenant occupying the property can remain living there while the damages are repaired. The maximum payout the property owner could receive is $240,000 for the dwelling alone.  

Understanding TIV and ITV concepts is crucial to make informed decisions about your insurance and coverage amounts. Our team is always here to help! For any questions or to get more information about your specific insurance needs, please contact your Client Service Advisor.