Why Purchase Renters Insurance the Benefits of Replacement Cost Insurance Endorsement

Few people want insurance and even fewer want to lose property. So whether you want insurance or not, statistics suggest that you need insurance especially if you are a renter. Affordable insurance can be a renter’s best friend should you lose property that could have been covered.

The number of American renters is exploding according to Harvard University’s Joint Center for Home studies which reports that there are 87 million renters with another 1 million expected to join their ranks each year.

Why purchase insurance?

A 2008 insurance company survey found that approximately 40 percent of renters have insurance and that the typical renter owns between $5,000 and $30,000 in coverable property. Should a loss occur while renting; failure to have adequate renter’s insurance could add insult to the injury of your loss. Insurance should be considered a key piece of your “personal recovery plan” in the event of an unexpected loss of property.

Before you purchase, you should understand two important things about insurance.

<>Insurance is designed to restore you to your “pre-loss state”.
<>Insurance is not designed to enrich the insured.

A good insurance policy will empower you to resume living as if no loss had ever occurred.

Why Renter’s Insurance

According to the 2001 National Crime Victimization Survey “Rented households were burglarized at rates 79 percent higher than owned households.” The survey also concluded that for every 1,000 rented households 210 experienced a loss due to property crimes versus 146 per 1,000 for owned households. A renter’s insurance policy helps to overcome the injury of property loss by restoring the property at either the actual cash value or the replacement cost.

Actual Cash Value vs. Replacement Cost

When purchasing a renter’s policy it is important to decide how you want to design your coverage: with Actual Cash Value (ACV) or Replacement Cost (RC).

Actual Cash Value is standard with most renters’ policies. An ACV policy costs less and renters choose it because it’s cheaper. If you purchase an ACV policy, your loss will be covered. You will receive the value of the covered item, minus the deductible and depreciation for the age and condition of the item at the time of the loss.

Example: You purchased a leather sofa three years ago which cost $2,500. The sofa is damaged or destroyed beyond use. Your ACV policy will pay $2,500 minus your deductible and a percentage reduction for depreciation. You may recover $1,250 for the sofa you purchased at $2,500. In this instance, an ACV policy mitigates your loss; meaning it reduces the impact of your loss of property.

Why You Want Replacement Cost!

Replacement Cost coverage typically requires an added endorsement to the standard renter’s policy with a nominal increase of premium.

Example: Using the same leather sofa, with a RC policy the loss would be paid at the current market cost to replace the item. The 3 year old, $2,500 sofa purchased may cost $3,000 to replace in the current market.

With a $500 deductible the RC policy holder will receive the current replacement cost minus the deductible or $2,500 for their sofa.

The Real Cost of Renter’s Insurance

A Midwest insurance company reported that its $15,000 ACV policy with a $500 deductible costs $208 per year. The same policy with a RC endorsement costs $275 per year; a difference of 18 cents per day for the added protection. You decide which is best, save pennies today or pay thousands after a loss.