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How Much Should My Policy Cover?

The coverage included in a renters insurance policy is based upon financial limits. Each area of the policy has its own limit, as well as its own deductible. In most cases, renters insurance plans have common default limits that insurers use for general ballpark quotes for coverage. However, this does not mean every renter has to carry these default levels of coverage. Any prospective policy holder is free to gather quotes based on higher limits of financial protection on an as needed basis. Many renters wonder, then, how much coverage they need, and how high the limits on their policies should be.

The answer is both individual and personal. There is no formula that you can plug in to spit out the ideal policy coverage, especially when only the personal property portion is even related to the assets of the policy holder. However, you are really the best one to judge how much coverage you need in a renters insurance plan. That's because you know better than anyone else how much you own and what it would take to replace it all.

Coming up with a Figure

To come up with a suitable figure for your personal property renters policy, first take a good inventory of all the things you own and hope to insure. There is free help available online, including free worksheets that you can use to categorize all your belongings and calculate their replacement cost. To more closely assess the monetary value you need to reach in your policy, first figure out whether you will be carrying actual cash value or replacement value personal property coverage. The answer will significantly change the monetary amount of coverage you'll need.

ACV vs. Replacement Value Coverage

Actual cash value is often the default coverage included in a renters insurance plan. When this is the case, policy holders often have the option to upgrade to replacement value coverage for an additional premium. Actual cash value pays out for property losses based on their depreciated, present day market value or cash value. Replacement value coverage pays out for losses based on what it will take to replace them with similar new items and not based on what the value of the lost items might be. Taking a closer look at these two options and getting a sense of the difference in premium cost between the two can help you decide which one you want to go with in your renters insurance plan.

Once you have made that determination, the rest is easy. Take the value of all your property calculated based on the type of coverage you are going to purchase (ACV or replacement), and add a small percentage for margin of error and for additional items you may acquire during the covered policy period. Deciding how much your renters insurance policy should cover is not something you can do in a vacuum. You have to make it a concrete decision by taking inventory of what you own.

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