Before you purchase a renters insurance policy, you’ll need to take an inventory of everything you keep inside your home and get an idea of its value. You’ll have to make an important choice between two options that will greatly affect your premium and payout; knowing what your stuff is worth can help you decide.
The first option is to receive the actual cash value (ACV) of your personal items in the event of a theft, accident, or natural disaster. When you choose to receive the actual cash value, your insurance company will determine what the actual value of one or more items that were damaged/stolen and pay you that amount. For example, suppose you bought a $600 television three years ago that was recently stolen. Your insurance company will take the retail value of the tv, account for its age, and then pay out an amount that the item would be worth today.
The other renters insurance option you have is to receive the replacement cost value (RCV) for your items. If you choose to receive the RCV, your insurance company will pay you out what it costs to replace an item that was damaged or stolen. An individual in the same example above who had an RCV renters insurance policy would receive an amount from their insurance company based on what it would cost to purchase a new version of that $600 tv, with the same specifications, as opposed to what a used tv would be worth.
Both insurance policies have their ups and downs, but generally, an RCV renters insurance policy will pay out more than an ACV one. However, your monthly premiums will be more expensive with an RCV policy than they will with an ACV policy.
Last but not least, certain valuable items may not be covered on a standard renters insurance policy. These are items like high-priced works of art, jewelry, or other valuable items. If you want to insure them, you’ll likely need to purchase an additional policy.