Some people get Renter’s insurance only because it’s a requirement of their landlord/leasing company so they look for the cheapest coverage they can find to satisfy that need. Others, who want coverage for their belongings, are more concerned about what’s really covered. In either circumstance it’s good to know the difference in coverages since it could impact your life down the road. The choice is the buyer’s but best to make it knowing the difference.
You found a great deal on a Renter’s insurance policy. Do yourself a favor and see if it covers Replacement Cost or Actual Cash Value [ACV]. Saving a few dollars upfront may not be worth it. Both options can offer some coverage for your belongings but that’s where the similarity ends.
Replacement Cost vs Actual Cost
Actual Cost Value
If you’ve ever had standard full coverage on a vehicle, you know what ACV is. It’s the actual cash value of the car minus depreciation and minus the deductible (it’s how people can still owe more than the car is worth at the time of an accident). Household items are similar. Since ACV is the depreciated value of an item, in a Renter’s policy it would be the amount originally paid minus depreciation, minus your deductible. An insurance company starts by determining the market value of an item beginning with discovering how much you paid for it. Next, they consider how long you’ve had the item. There are other criteria that may be used such as the expected lifespan of an item and its condition. ACV doesn’t consider the cost to replace an item.
In Renter’s insurance with Replacement Cost coverage, the insurer pays the amount it would cost to purchase a same or similar item, minus your deductible and within your policy limits and limitations. The idea being, a 25’ television is replaced with a similar 25” television. Replacement cost often increases your premium cost due to the higher payout potential for the insurance company.
The choice is yours. In either option, you want to make sure to keep accurate records both of receipts and a pictorial inventory in case you ever need it. if you have a high value item or a lot of high value items within a category, they are not automatically covered. Make sure you review your limits and coverages; tweak where necessary, available and affordable to your budget.
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