Get free, no obligation quotes from multiple providers

State Farm Insurance Allstate Insurance Farmers Insurance American Family Insurance Unitrin Insurance Travelers Insurance

Should My Policy Cover Replacement Value?

The personal property portion of a renters insurance policy is valuable for the protection it gives the covered policy holder's personal possessions. There are two different ways insurers calculate personal property protection. One is by taking actual cash value. The other is by using full replacement value of the insured possessions. Replacement value is the more expensive of the two forms of coverage, and for good reason. A quick look at the basic difference of the two will help you decide whether the additional cost of full replacement coverage is worth paying for.

Actual Cash Value Explained

Actual cash value or ACV coverage is the default value of many, though not all, renters insurance personal property policies. Actual cash value coverage is easy to define, as it reflects exactly the kind of coverage its name suggests. Actual cash value covers any lost item according to its actual cash or depreciated market value. In other words, the compensation you can get for a lost or stolen item will depend on how old it is and how well items of that sort hold their value over time. Your insurance protection will have nothing to do with current market prices for new items or what you might expect to pay to replace a lot item with a new item with similar features. Actual cash value only insures your possessions against the insurer's assessment of their remaining non depreciated value. You might look at ACV coverage as insurance based on what you might expect to get for your goods if you sold them used.

Full Replacement Coverage Explained

By contrast, replacement value coverage in a personal property renters policy does not concern itself at all with depreciation. In fact, the monetary value of this sort of insurance coverage is really not based on the lost item at all, but on its replacement. Full replacement coverage takes into consideration only the financial burden the covered policy holder would have to take on to buy a new item similar to the lost one on the marketplace today. Full replacement value (also called guaranteed replacement) renters insurance property coverage costs more than actual cash value protection, but the protection it provides is far superior.

If you lose some or all of your belongings in a fire or some other major claim event, the usefulness of your personal property policy will hinge on its ability to help you replace what you lost at the lowest possible direct cost to you. To this end, replacement value coverage is clearly a better choice than actual cash value insurance. But as mentioned previously, this type of plan does cost more than an ACV policy. So the best way to decide for sure which way to go is to get prices both ways. If there is any way you can afford the more extensive coverage, it is highly recommended you go ahead and make that investment. You will be glad you did when a claim arises.

Learning Center