When renting an apartment, renters insurance is valuable to replace lost possessions. If tenants are choosing an insurance policy for the first time, it's important to consider how their belongings will be covered in case of an incident.
The Insurance Information Institute highlighted two kinds of renters insurance: actual cash value and replacement cost policies. To choose the right policy, tenants will have to look at how their coverage will affect whether they will pay for damaged or lost belongings down the road.
Reimburse belongings based on actual cash value
The first type of renters insurance is an actual cash value policy. Overall, this coverage pays to replace possessions minus depreciation up to the limit of the policy, according to the III. The institute noted this policy subtracts depreciation, which may affect the amount paid to the policyholder.
One of the benefits of an actual cash value policy is being able to recoup much of the expenses related to replacing items. However, renters should determine whether several factors, including depreciation based on valuables' age and condition, will affect their coverage, according to Allstate Insurance Company. If items are already old, the items' values may be much lower than when they were first purchased.
Replace possessions without accounting for depreciation
Another kind of coverage pays the actual cash value of the belongings as well as the rest of the money to purchase the replacement items. This type of coverage will pay the exact cost of replacing belongings up to the limit of the policy, III stated. The main difference between actual cash value and replace cost policies is policyholders do not have to worry about depreciation with the latter.
Allstate noted a reimbursement provision usually covers items based on the amount to replace them.
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