Different Types of Renters Insurance Outlined

Renters Insurance Basics

People who rent their homes can choose from a standard renters policy or a condo insurance policy, depending on where they live. Also known as an HO-4 policy, a standard renters policy covers the belongings of apartment dwellers and provides liability protection. A condo insurance policy, known as an HO-6, provides the same protections for policyholders who live in condominiums. With both kinds of policies, renters will have the choice between two kinds of coverage: actual cash value (ACV) and replacement cost. Which policy you choose will have a huge impact on the benefits you receive in the event of a loss, so it’s important to make an informed decision. Read on for an explanation of how these two types of renters insurance policies differ.

Actual Cash Value

Actual cash value (ACV) coverage is usually the most common type of renters insurance. With ACV coverage, the insurance company reimburses the policyholder for the dollar amount of items lost less depreciation. For instance, if you bought a laptop for $2,000 two years ago, your insurer may only value it at $500 to account for depreciation. If you have ACV coverage and your laptop is stolen, you would only receive $500 for the loss, not $2,000. ACV renters insurance coverage typically has less expensive premiums than replacement cost coverage, but it also means a reduced benefit in the event of a loss.

Replacement Cost

Replacement cost coverage is more expensive than actual cash value insurance, but it is usually worth the additional cost. A replacement cost renters insurance policy will reimburse you for the full amount of what it would cost to replace a damaged item or items new today. This type of renters insurance does not take depreciation into consideration. Using the example from above, replacement cost coverage would reimburse the policyholder for however much it would cost to buy the same laptop new today.

Choosing the Right Type of Coverage

In most situations, replacement cost coverage is the best option for renters. A replacement cost policy ensures that you will be adequately compensated for any losses. If you choose actual cash value coverage, your settlement amount will only be enough to buy your lost or damaged possessions used. The only time actual cash value coverage would be appropriate is if you cannot afford the premiums for a replacement cost policy. This is rarely the case, however, because the difference in premiums between the two is usually very small.