Actual Cash Value Renters Insurance
Let’s say your apartment burns down, destroying the beloved juicer that’s been in your family for generations. Sad. Back to solid foods for you. Or not. Luckily, you have renters insurance. You’ll be reimbursed for the juicer. How much exactly? Well, while the sentimental value of your grandfather’s juicer is incalculable, there are two ways insurers determine how much to pay to replace belongings. Replacement cost renters insurance means the insurer will pay you based on the price of a brand new juicer (minus your deductible). Actual cash value renters insurance, however, pays based on the depreciated value of the juicer (also, minus your deductible). Given your father gave you the juicer and his father gave it to him, that means you won’t get very much at all under an actual cash value policy, also known as depreciated loss coverage. A 50-year-old juicer just isn’t worth that much. Bad news if you’re all about that #juicelife.
However, an actual cash value policy is cheaper than a replacement cost value policy by about 10% according to the Insurance Information Institute. You can use the savings from those lower monthly premiums to buy more kale for your cleanses.
Actual Cash Value vs. Replacement Cost: Which Is Best?
That depends. You need to weigh the value of all your possessions, beyond your juicer.
You also need to think about the stress of losing all of your things. If you think you need more protection against their loss and are willing to pay for it, a replacement cost value policy might be worth your while. But a replacement cost policy is more expensive. If you’d rather save that money and feel comfortable with less reimbursement in case something happens, an actual cash value policy might be a better choice.
Renters Insurance: Floaters, Riders & Endorsements
Let’s say most of your stuff doesn’t mean anything to you. Like Tyler Durden in “Fight Club,” you believe the things you own end up owning you, and you’ve rejected material possessions. Except for your juicer.
You can opt for a cheaper actual cash value policy and add a rider, also known as a floater or endorsement, to your policy to protect your juicer. In the case of a juicer, you can ask to add a replacement cost value rider to an actual cash value policy to get reimbursed for the cost of a new juicer if it’s damaged.
A floater generally costs extra, but not always. Floaters can help fill in where an actual cash value policy falls short.
How Renters Insurance Works
Many renters policies set dollar limits on items in certain categories like musical equipment, art and jewelry, so floaters are often required to get the extra coverage you need for these valuables. Remember, a renters insurance policy generally has three main limits: total property damage coverage, total liability coverage (in case a friend gets injured using the juicer in your apartment, incurs medical bills and/or sues you) and individual item coverage limits. Once you pay your deductible, you’ll get paid for damage or theft of covered items up to those coverage limits. So long as the damage was done by a covered peril, of course. Confused? You can learn more about how renters insurance works here.
Also worth noting: Most renters policies, especially actual cash value policies, are cheap, averaging less than $20 a month.
How Does Renters Insurance Pay Out?
To sum up, an actual cash value policy costs less and will reimburse you if something happens to the stuff in your apartment, but not enough to buy everything new again. That’s because it pays out based on the depreciated value of your stuff.
If you have a 5-year-old TV, you won’t get enough money to buy a new TV. If you have a 50-year-old juicer, you’ll hardly get anything, no matter how cherished it is. If you’d like to be reimbursed for the price of a new TV, you can pay extra for a replacement cost policy. You can go here to learn how to figure out how much renters insurance you need.
Last updated on Oct 12th 2017