The Difference between Actual Cash value and Replacement Cash value in Renters Insurance

Suffer a major loss from fire or other catastrophic event, and you can put your life back together with relative ease, if you have Replacement Cost Value insurance coverage. It’s the settlement provision of your Renter’s Insurance Policy that makes the difference between rapid return to normalcy and months of recovering from loss. Choosing the best settlement provision – and carefully documenting your property – will save headaches and heartache down the road.

The dominant industry standard offers Actual Cash Value (ACV) settlement terms, defined as the replacement cost (what you would have to pay to replace items) minus depreciation (the decrease in value based on age, wear and tear). Some policies may define this as “fair market value” – what a willing buyer would pay for your property. That plush mattress, for example, might have cost $1200, but try to sell it and see if you will get even 10 percent of that cost! In either case, you would find yourself with inadequate funds to replace your belongings with the same quality of goods.

Replacement Cost Value, though, covers the amount you need to replace your property with similar kind and quality, without deducting for depreciation. It’s a big difference and a real discussion point to have with your insurance agent. Your premiums will be higher, but RCV settlements deliver maximum value and peace of mind. With RCV coverage, you will be able to replace clothing, furniture and other personal items at current retail prices.

Documenting your property – The insurance company requires you to complete a loss-claim report with documentation to authenticate ownership of damaged property. You will be compensated only for items you can prove you had, so make a detailed inventory of your belongings – furnishings, appliances, electronics, art, clothing and other personal possessions. Include careful notes, descriptions and photos. In fact, it’s always a good idea to take photos of rooms, closets and particularly unique or valuable items. Keep sales slips and other documentation to substantiate your claim. You need only imagine losing your entire wardrobe, paintings and furniture, only to try to recreate what you owned and how much it was worth. Your advance efforts will save you the stress of creating a list from memory.

The settlement provision you choose is one of the most important decisions you will make in purchasing Renters Insurance. Coverage limits and amount of deductible also will impact your final settlement, but the ACV versus RCV methods of calculation will make a huge difference in your ability to recover from a loss.