It is very important for renters to understand the difference between cash value insurance and replacement cost insurance. While you typically see these two types of insurance policies associated with homeowners insurance, the same applies to renters insurance. In most cases, it is well worth the added expense to purchase replacement cost renters insurance to protect your possessions and their value.

Cash value renters insurance will cover the cost of your personal property inside your rental home for its actual current value. In most cases, this means that the value of your items is reduced because of depreciation. Like when you drive a new car off of the car lot and it loses value immediately, the same is true for most of your personal possessions. As soon as you take your new flat screen television or laptop out of the store where you bought it, it is worth significantly less than what you paid for it. A cash value insurance policy will only pay you for those deprecated values. That means that you could lose up to 40% of your items’ value and receive far less than you need to replace it if you file a claim. For example, if you had a cash value renters insurance policy for the standard $100,000 coverage limit and suffered a complete loss, you would most likely only receive a check from your insurance company for $60,000 which is the cash value of your possessions.

In most cases, choosing the replacement cost option for your personal belongings when you purchase renters insurance is the best option. For only 10% more in annual premium payments, you can receive the entire replacement cost for your insured valuables should you have to file a claim. This could really add up to a serious amount of money should you suffer a total loss of all your possessions. Renters insurance is one of the cheapest forms of insurance and routinely costs only $30 or so per month. Most renters insurance policies cover your possessions up to a value of $100,000. With replacement cost renters insurance, that is about $40,000 of additional insurance coverage that you are earning for as little as $3 extra per month in premium payments.

As with all forms of insurance, the policies are set up to try and ensure that people do not profit from insurance. That is not what it is designed for, and everyone pays higher insurance premiums when people profit off of insurance claims. With replacement cost renters insurance, your insurance company will require you to actually replace all of your possessions. Most insurance companies only pay you the depreciated cash value until you produce receipts that state your actual replacement costs. Then, the insurance company completes your claim payout for your full replacement cost.