Replacement cost renters insurance does as promised: It covers the cost of replacing your damaged or destroyed possessions.
Consider a replacement cost policy premium renters insurance. Allow us to explain: Renters insurance, as you may know, covers your stuff, but your stuff … well, it changes in value over time. What was once a $1,000 smartphone ultimately becomes a relic you’d be lucky to get $250 for on eBay. But if you have replacement cost renters insurance, you don’t have to worry about that kind of depreciation, since your policy covers the cost of repairing or replacing damaged goods at the time of the claim. On the flip side, actual cash value renters insurance — the basic version of renters insurance — covers only what the item is worth today. It doesn’t account for what you paid originally.
Replacement cost renters insurance might sound like a no-brainer, but, as with all premium things, it’s got a higher price tag than its actual cash value counterpart. That’s because a replacement cost policy provides more coverage. (You get what you pay for, you know.) But if money is tight, you can lower the cost of renters insurance by choosing a policy that only covers the depreciated value of your stuff in lieu of the replacement cost. Some renters insurance is better than no renters insurance, after all.
Keep in mind, renters insurance is more affordable than you may think. The National Association of Insurance Commissioners puts the average annual renters insurance premium at about $190, or a little less than $16 a month. Sure, to get that “as low as $5” a month price tag, you’re probably looking at an actual cash value policy, but replacement cost renters insurance could be within your budget. And, given how much more coverage it provides, it’s worth not immediately ruling out. You can go here to learn how to figure out how much renters insurance you need.
Replacement cost vs. actual cash value isn’t the only policy facet that affects how your renters insurance pays out. Every policy has a deductible (the amount of money you’ll pay out before coverage kicks in). Plus, you’ll have coverage limits — and a few types no less! Renters insurance comes with overall limits for personal property coverage and liability coverage. (Remember, policies commonly cover medical expenses and lawyer fees associated with an accident someone has at your place.) And there are usually individual limits on big-ticket items. You might have $25,000 in personal property coverage, but only $5,000 worth of coverage for electronics specifically.
Another thing: Most policies come with exclusions, so a claim will only pay out if damage was due to a covered event. Common renters insurance exclusions include flood, earthquake and vermin damage, but you can learn more about what renters insurance does — and doesn’t cover — here.
Renters insurance has a lot of jargon. Here are some other common terms to know before shopping around.
Perils: A fancy (and ominous) way of saying incidents. Commonly covered perils of renters insurance include fire, explosions, theft, vandalism and falling objects.
All-risk renters insurance: a policy that covers any peril that isn’t specifically listed as an exclusion.
Named peril renters insurance: a policy that only covers perils explicitly listed in its fine print.
Additional living expenses: also called loss of usage, this refers to any coverage you receive for expenses if you’re forced to leave your apartment. For instance, if there’s a fire in your building, your policy may cover the cost of the hotel and meals for a certain time you’re out-of-home.