Renter’s Insurance – Actual cash value versus replacement cost value

When taking out contents insurance, it is important to make an inventory of all the items you want covered and to look at the value of replacement in the event of a calamity, accidental damage or theft. When taking out home contents insurance, there are two different choices that you must take into account; your monthly insurance premiums will be based on your decision. These are the replacement value (RCV) of your assets and the actual cash value (ACV) of your assets.

Replacement Cost Value (RCV) Renters insurance allows you to replace your lost or damaged possessions with similar items at current market value. So, for example, if you had a 10 megapixel digital camera with 3x optical zoom that you owned for two years before filing a claim, your insurance company would offer you the current market replacement value for a new camera with similar specs. You will get enough payout from your insurance company to replace your stolen or damaged item.

Actual Present Value (ACV) insurance takes into account that you owned the camera for a few years before it was lost or stolen; it will have had some wear and tear, which has reduced its value from its “new” and current price. So (ACV = RCV minus depreciation). The ACV insurance payout will be less than market value, which may mean you have to add money yourself to replace a lost item.

The benefit of choosing RCV on your renters insurance policy is that any covered loss or damage to your covered property will be fully replaced at current market value. The downside to this option is that your monthly premiums are typically higher than ACV insurance.

The advantage of choosing ACV insurance is that your monthly premiums are lower, because you only get back the depreciated value of your belongings in the event of loss or damage. You may not receive enough claim money to replace the items you have claimed.

Always read the fine print on your renter’s insurance contract to make sure you have the option you want. If you opt for ACV, you will receive an affordable premium, but you will not receive replacement costs from your insurance. If you opt for RCV, you can be sure that you will receive the money to replace your insured belongings, even if your premium is slightly higher.

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Learn the basics so you can make the right decisions to protect your property, financial well-being and peace of mind. Take a few minutes to get a free, no-obligation renters insurance quote from Homesite and see how affordable it can be.