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What is Actual Cash Value Coverage?

Every renters insurance policy contains provisions for personal property protection, along with other areas of coverage. As a covered policy holder, your personal property protection is based on a maximum limit of coverage, and also includes a deductible. This means your policy really has two limits: a minimum and a maximum. Very small claims are not really feasible because your deductible must be met before any payment can be made. And any excess claims beyond the coverage limits cannot be covered. The monetary coverage of your personal property policy is either based on full replacement or actual cash value coverage. Actual cash value, also called ACV coverage, is the less expensive of the two and is the most common default personal property policy.

ACV Coverage Reflects Depreciation

Actual cash value coverage in a renters insurance plan is less expensive than full replacement coverage because of the way it calculates the payout on losses. Full replacement or guaranteed replacement coverage pays out for losses based on the present day replacement cost to buy a lost item new on the market today. For example, if your computer is stolen, the value of your replacement cost renters insurance would be equivalent to the cost to buy a new similar computer today. By contrast, actual cash value coverage does not concern itself with present day cost at all. It focuses instead on the remaining cash value of the item in question. The monetary payment on that same stolen computer would be based on the insurance company's calculation of the computer's market value. In other words, the payout you could expect to get might be something close to what you could expect to receive if you had sold the computer today as a used machine.

Actual cash value does not cost as much as full replacement coverage because the protection it provides is not nearly as extensive. The payouts insurers have to make are not nearly as costly when they are dealing with claims from customers with ACV coverage than they are with customers with full replacement insurance. Some insurers do offer full replacement as the default mode of personal property insurance, but many include ACV as the default level and require consumers to pay extra for full replacement. The specifics of this dynamic will depend on the company and locality. Take a look at both of your options and get prices both ways. You may find that full replacement coverage is worth the extra cost over and above actual cash value coverage.

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