Renters Insurance Basics: Actual Cash Value vs. Replacement Cost
If you live in a rental property, it’s important that you purchase a renter’s insurance policy to protect yourself. Before you do however, you should understand the difference between actual cash value insurance and replacement cost insurance. In the event of theft, fire, or other disaster, the premium you will pay is well worth the expense to protect your belongings.
Actual Cash Value Renter’s Insurance
A policy such as this one will cover your possessions at their actual value. This means that the original cost of your items will be reduced to account for depreciation. When buying a brand new car, it loses value the minute you drive it off the lot. The same holds true with furniture, appliances, and other personal items, including electronics like flat-screen televisions, audio equipment, and computers. In a fire, you might lose up to 40% of the value of those items, which would leave you with far less than you need to replace the item. With actual cash value renter’s insurance, if you had a standard $100,000 policy and suffered a total loss, you would probably only receive $60,000, which is far less than you would need to replace your belongings.
Replacement Cost Renter’s Insurance
This policy costs a bit more, but it is invaluable to the renter in the case of a catastrophic loss. Usually, these premiums cost about 10% more each year, but will pay whatever it takes (up to the full value of the policy) to replace your items with similar (or identical) items. For that same $100,000 policy, you will have an additional $40,000 worth of coverage for just a few dollars per month more in premium fees. Of course, with replacement cost renter’s insurance, your insurance company will expect you to use the money to actually replace your items. When purchasing renter’s insurance, also ask about items such as jewelry and expensive musical instruments. Sometimes these items need to be listed separately.
Buy a Policy Today
Don’t make the mistake of waiting until disaster strikes to learn about renter’s insurance. In fact, it’s best to secure coverage before you move into your new home or apartment.
How Much Renter’s Insurance Do I Need?
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