Actual Cash value Versus Replacement Cost Insurance

When you are in the market for renter’s insurance, there are a few things to consider before agreeing on a policy. You should first know the difference between actual cash value and replacement cost insurance policies, and the effects that they have on replacing your belongings. You should also be aware of what a deductible is, and how it affects both the insurance premium rates, and the insurance payout if anything happens to your belongings, like losing them to theft or a fire. Knowing which type of renter’s insurance is best for you, before approaching an insurance agent, could save you a lot of money on renter’s insurance policy premiums in the long term.

If you do not have many belongings, and/or what you do have is older and not of major value, then a cash value renter’s insurance policy would probably be your best option. And, if you have expensive belongings, the replacement cost renter’s insurance policy would be more prudent. The difference between a cash value and a replacement cost insurance policy is that, with the cash value policy, you are given the amount of money that you spent on your valuables that are insured for the incident, minus the deductible on your policy and the devaluation of your belongings. As belongings get older, they become worth less and less under this type if policy. And, replacement cost insurance gives you back what you spent on your goods, which allows you to replace the articles with similar, if not the exact same models, but is more expensive than cash value replacement policies.

With cash value insurance, you may have to accept cheaper valuables. If you had, for example, a pair of $500 designer jeans stolen as part of a break-in, you may only get a $34.99 check from the insurance company, representing the cost of a pair of Levi’s in the same size. Cash value insurance only insures that you get the same things, not the same brands of things, and if you had a deductible of $60 or more, there would be no claim paid for those expensive designer jeans. Replacement cost renter’s insurance would give you the $500 if you had a $0 deductible, but with a $500 or higher deductible, there would still be no claim paid for those designer jeans under replacement cost policies.

There are different pros and cons for the two types of insurance coverage; actual cash value and cost replacement. For replacement cost renter’s insurance, one of the major pros include receiving what your belongings are actually going to cost you to replace them. Cons of a replacement cost policy may start with the higher monthly premiums, as the insurance company would have to pay more for a claim.

The biggest pro for getting a cost replacement policy would be getting the exact same brand, make and model, or the equivalent as stated by the manufacturer, not the insurance company. Cons for a cash value policy would include receiving from the insurance company what your valuables were worth, in the condition that they were in, at the time of the incident (theft, fire, break in, etc.). This is called devaluation, where your belongings become worth less and less with each passing year. The cost of the monthly premiums for a cash value renter’s insurance policy would be less expensive, though.

Call a renter’s insurance provider today to find out which policy would be best for you and your belongings. Knowing the differences between a cash value and a cost replacement renter’s insurance policy will make your choice more prudent to your insurance requirements.