What is the Right Level of Rental Insurance Coverage?

The amount of renters insurance you need depends on a number of factors, and your choice will determine the price of your coverage. A major consideration, when deciding how much coverage you need, is the amount of property you insure, and how expensive it is. Its important to be thorough and insure all of your property that might need replacement, not just one or two big ticket items. If there is a fire in your building, for example, you could lose much more than that. Could you afford to replace all your furniture this instant?

As with any insurance, a high deductible will mean lower payments and a lower overall cost. Some insurers offer discounts if you have certain safety precautions in place in your building. The presence of burglar and fire alarms, fire extinguishers, sprinkler systems or other safety measures may not only save your life, but can save you a bundle on insurance as well!

Another thing that will have an effect on the cost of your renters insurance coverage is the type of coverage you elect. There are two types of coverage, based on the type of payout you choose. One is actual cash value or ACV. Actual cash value coverage pays out whatever the item was worth at the time of the loss. That is calculated as the cost of replacement, minus depreciation. For example, lets say you bought a computer three years ago for two thousand dollars. With depreciation, that computer would only be worth five hundred dollars now. Therefore, your actual cash value (ACV) would be paid out at five hundred dollars.

Replacement Cost Coverage pays out the actual replacement value of the item; there is no deduction for depreciation. In that case, you would keep the receipt for your computer that says it was worth two thousand dollars new, and the insurance company would give you that amount to pay for a new computer. Though this type of coverage usually comes at an additional premium, it may be worth it when it comes time to replace your belongings.

If you purchase a renters insurance policy, always be sure to document and catalog your insured belongings thoroughly. Take pictures, save receipts and keep them in a safe place or fireproof box. If you ever need to collect on your renters insurance policy, you will need these items as proof of your claim to replace your destroyed or stolen belongings