Home insurance is an insurance policy that should be carefully considered. Fire, theft, accidents, and other unforeseen events in your life should be covered, both financially and emotionally.
Not sure where to start? Whether you’re a first-time homebuyer or have been using renters insurance for years, this article takes a closer look at two types of renter’s insurance so you can make the best choice for your individual needs.
What is renters insurance?
Renter’s insurance is, simply put, insurance that protects your property in the event of a disaster or unforeseen event. This type of insurance protects your property against vandalism, theft, smoke, fire, wind, lightning, and water damage (excluding floods). Like home insurance, you are covered by renters insurance if someone is injured on your property and reports a loss.
Your landlord’s insurance policy may cover the structure where you live. However, this insurance does not protect your personal property. If the house is completely lost, the structure can be rebuilt, but you will be returning to an empty house.
There are two main types of renters insurance: replacement cost coverage and actual damage coverage.
Replacement cost coverage is usually a little more expensive, as you have to pay more money. Actual cash value coverage covers the cost of replacing your property, but only at the depreciated value. It’s important to know the differences between the two types of coverage before choosing one.
Actual Cash Value
Home insurance pays the actual cash value, which is the replacement value of your property minus the depreciation. For example, a sofa cost $3,000 when you bought it, but that was 10 years ago. After deducting depreciation, the actual present value is the current market value, which is very little.
The advantage of using an actual current value for renters insurance is that you only receive the loss in value of the damaged property, which means lower monthly premiums. However, there may not be enough coverage to fully replace your property.
If you’re just starting out and don’t have much to claim yet, you can save a little money with market value insurance, while saving on the right furniture set or entertainment system of your dreams.
Replacement
If you’re concerned about suffering a financial loss with current value insurance, you should consider replacement cost insurance.
Replacement cost is the total replacement value of damaged, destroyed, or stolen items, without deduction for depreciation. This value is often estimated as the value the item had when it was purchased. If the item is no longer sold, you will still receive the original purchase price in order to find a similar item. If the purchased item is still available, but the price has dropped, the value of the item may be reflected in your claim.
In some cases, the replacement value can be paid in installments. In many cases, the insurer may pay ACV half of the purchase price or the full replacement value as the first payment. Once you have purchased the replacement item, you should send the paperwork to the insurance company and request the balance be transferred.
The advantage of choosing replacement value in home insurance is that damaged items are fully replaced at the current market value. No depreciation is deducted, but the monthly premium is slightly higher.
If you have valuable furniture, several televisions, and electronics such as laptops, or if your home is highly decorated and furnished, replacement cost insurance is the best option. Some items, even if they are in good condition, can quickly lose their value. Replacement cost insurance ensures that you can replace lost items with ones that won’t cause you any damage.
Is there anything else I should know?
Regardless of the insurance policy you choose, there are some situations that are not covered. These include floods, earthquakes, and hurricanes. To protect yourself, you should consider purchasing optional or supplemental insurance.
In addition, there are restrictions on certain types of insurance. For example, most policies offer only limited coverage for jewelry and other items. If you don’t wear much jewelry, limited coverage may be sufficient. However, if you are a collector of the finer things in life, it would be a wise decision to purchase additional insurance.
If you purchase rental insurance, you should take an inventory of all the items you wish to insure and estimate the value of each one so that you can replace them in the event of an accident, disaster, or theft.
How do I know which one is right for me?
Not sure which insurance policy to choose yet? Calculating the current value of your property and getting quotes for both types of insurance is a good place to start. However, talking to an insurance agent can help you find the perfect insurance coverage.
Remember that you have the option to change your policy at any moment. What may be adequate insurance today may not be enough a year from now.
If you’ve avoided disaster for too long by not purchasing renters insurance, now is the perfect time to purchase a policy. You don’t want to find yourself in a situation where your building goes up in flames and all your belongings are lost because you made the first call too late.
About Author
Lily Poole is a Property and Home Insurance officer by profession. She is pretty well experienced in the insurance field like condominium insurance Brooklyn. Further, she has an impressive profile in the training and development industry.
