Renters Insurance Actual Cash value Versus Replacement Cost

Renter’s insurance, if renting a home or apartment, can prove to be valuable in a variety of situations. There are many different ways that a person’s personal property can be damaged including fire, flood, and vandalism. Property can also be lost by theft. It is unlikely that a person could replace all items damaged or lost and that is where renter’s insurance comes in. Having a renter’s insurance policy will help the renter to replace or repair their belongings.

Generally, renter’s insurance is reasonably priced and is a great alternative to replacing all of your furniture, electronics, appliances, etc. out of your own pocket if you were to fall victim to property damage or loss.

There are two different options available for renters. These include actual cash value and replacement cost. They both have their pros and cons. Both are defined below.

Actual cash value represents the dollar amount it would take to replace the lost or damaged item. If the item is subject to depreciation, such as electronic or appliances, then it would represent the amount after depreciation. Example: if a television is purchased for $1,500 five years ago and it is only currently worth $800 then the policy holder would receive $800.

Choosing the actual cash value option is the cheaper route to go but if items covered are fairly old then the amount received to replace the items might not be enough to purchase a useable replacement.

Replacement cost is the same as the actual cash value only without deducting for depreciation. In other terms, it takes into consideration the change in purchase prices. Example: a television is purchased five years ago for $1,500 and to replace the television would cost $2,200 the policy holder would receive the $2,200 minus their deductible.

Choosing the replacement cost option will ensure that the policy holder will receive the funds to purchase a replacement item that is the same or similar quality as the item being replaced but having this coverage increases the cost of the insurance policy.

Whichever coverage is chosen, it is important to keep record of the items you had and the cost of which they were purchased. This would include receipts, pictures, and an itemized household inventory. These documents should be kept in a safe place, preferably in a remote location, such as a safe deposit box or a family member’s home, to ensure they are not damaged during an unpredictable loss.