Total Insurable Value (TIV) is the estimated replacement cost value of the association's improvements being insured. Such coverage is necessary to meet the lender’s requirements. For example, consider Fannie Mae’s requirements (from Fannie Mae’s Servicing Guide published February 10, 2016:
Insurance must cover 100% of the insurable replacement cost of the project improvements, including the individual units for condo and co-op projects.
Recommendation. Boards should ask the association's insurance broker what replacement cost was assigned to the buildings and how that value was determined. Establishing the correct TIV is important because the association will be paying the difference in a large loss if the TIV is too low. For example, if the cost to replace your buildings is $10 million and you purchase insurance with a TIV of $6 million, the association will likely be required to pay the deductible plus an additional $4 million before the carrier will pay any monies on a total loss from a fire or earthquake.
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