Choosing renter’s insurance coverage is as important as choosing the apartment itself. To make the right choice for you, it is important to understand the difference between Actual Cash Value (ACV)Coverage and Replacement Cost Value (RCV) Coverage.
An easy way to think about it is old versus new. Actual cash value is the “old.” With actual cash value coverage, your insurance policy will pay the cost for the damage of covered property minus the depreciation. Depreciation is the value lost due to conditions like wear and tear or age of an item. If you bought a dining room set that you expect to last for twenty years and you have had it for five years, the dining room set has lost 25% of its value.
Replacement cost value actually covers the cost to replace the item at today’s value. It does not matter how old the item is, it will cover the full value cost. For example, if you spent $2,000 on that dining room set five years ago, this policy does not subtract anything for depreciation. In fact, if that dining room set is no longer available, the policy will cover the cost of a comparable dining room set.
With actual cash value, the $2,000 you paid for the dining room set five years ago would have a depreciation of 25%. The depreciation value of 25% in this example would be $500.00. The insurance company would only pay you $1,500.00 for this dining room set.
There are pros and cons to each type of renter’s insurance coverage. The premiums for actual cash value coverage are typically less than the premiums for replacement cost value coverage. However, in the event that something unfortunate happened to your rental home, the replacement cost value coverage offers an easier option for replacing your items. In the end, you will have less out of pocket expense for replacing your valuables.
The best way to decide which coverage option is right for you is to think about your belongings. If you are a technology buff, for example, and have lots of electronics equipment, then replacement cost value coverage would work well for you. Actual cash value could not even begin to cover the cost of replacing what you lost. In this case, paying a little extra on the premium for replacement cost value coverage is more than worth it.
Once you have determined which coverage type suits your needs better, it is time to talk to your insurance agent. Keep in mind, if you have any questions about your policy, it is best to ask your agent for clarification.