Renters insurance: Actual Cash Value vs. Replacement Cost Value
When you take out renters insurance, it is important to take stock of all the items you want covered and to look at the value of replacing them in the event of a disaster, accidental damage, or theft. When taking out renters insurance, there are two different choices that you must consider; your monthly insurance premiums will be based upon your decision. These are the replacement cost value (RCV) of your possessions and the actual cash value (ACV) of your possessions.
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 mega pixel digital camera with 3x optical zoom that you owned for two years before you file a claim for it, your insurance company would offer you the current market replacement value for a new camera of similar specifications. You would have enough of a payout from your insurance company to replace your stolen or damaged item.
Actual cash value (ACV) insurance takes into account the fact that you owned the camera for a couple of years before it was lost or stolen; it will have suffered a certain amount of wear and tear, which has depreciated its value from the “new” and current price. Therefore (ACV = RCV minus depreciation). The payout from ACV insurance will be less than market value, which could mean that you have to add in money yourself to replace an item you lost.
The benefit of choosing RCV on your renters insurance is that any covered loss or damage to your covered possessions will be fully replaced at the current market value. The downside to this option is that your monthly premiums will typically be higher than ACV insurance.
The benefit of choosing ACV insurance is that your monthly premiums will be lower, reflecting the fact that you will receive only the depreciated value of your possessions in the event of loss or damage. You might not receive enough claim money to replace the items you have filed a claim on.
Always read the small print on your renters insurance contract to make sure that you have the option you want. If you choose ACV, you will have an affordable premium but will not receive replacement cost from your insurance. If you choose RCV, you will gain the comfort of knowing that you will receive the money to replace your insured possessions, even if your premium is somewhat higher.
Learn the basics, so you can make the right decisions for protecting 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 just how affordable it can be.