What is renters insurance replacement cost? I see it on my declarations page and I’m being charged for it, but I don’t remember asking for it to be added to my policy. Should I pay for replacement cost on renters insurance?
We get asked this question all the time. Usually by someone looking to save money on renters insurance, or someone who wants to know what is the cheapest renters insurance you can get? Is it worth paying for? Let’s find out.
What Is Replacement Cost Coverage On Renters Insurance?
Do you see a line item on your declarations page for replacement cost coverage on personal property? Find out why!
What Is Renters Insurance Replacement Cost?
If you read your policy document carefully, you’ll find that it specifies that personal property losses are to be settled at the actual cash value of the item. As the basic policy form is written, you’d get reimbursed only for the amount of the item minus depreciation. That’s bad. You can’t buy anything new for the same amount it’s worth if it’s a few months old, or a few years old.
There are three elements to renters insurance replacement cost:
- Cost to replace the item
- A similar item of like kind
- Similar quality
Of course, the cost to replace the item is the actual money you need to spend to get a new one. Let’s say it’s a couch. Although it’s a few years old, to buy a new couch you could spend anywhere between a few hundred dollars to a few thousand dollars.
Instead of giving you carte blanche, the insurance company expects that you will buy a new item which is similar and of like kind. For example, that means if you have one of those fluffy overstuffed couches, you’ll go buy something similar.
“Similar quality” means that if the couch you have came from Ashley Furniture, you’re not going to be replacing it at Ethan Allen. You’ll replace it with another item of about the same quality. In this case, you could go back to the original store for a replacement. Though styles change and they’re not likely to have your exact couch a few years later, you can get one of the same type and quality.
How Does Renters Insurance Replacement Cost Impact Obsolete Electronics?
This becomes more important when dealing with electronics. Let’s consider renters insurance replacement cost on a television. You got that 36 inch TV from your parents when they upgraded, so you didn’t pay anything for it. That could hurt the actual cash value. It’s an older style, with a tube. They don’t make them at all anymore.
Your parents bought it years ago at Sears. Your local Sears no longer sells electronics. That’s fine, it doesn’t have to be the same brand necessarily. But if it was house brand, you’ll go get a house brand TV at your local discount retailer. In this instance, “like kind” is affected by the fact that they no longer make tube TVs. You’ll have to get a flat screen, which the insurance will cover. It will be the house brand, and roughly the same size, and the same level of quality.
So How Does This Apply To Me?
Ultimately, renters insurance replacement cost is a way that your coverage can return you to the condition you were in before the loss. You now have a television of the same size and manufactured with the same quality. Although you don’t get an upgrade, you’re welcome to pay the difference out of pocket if you like. Insurance is designed to return you to the same condition you were in before. By having replacement cost coverage you’re ensured of that. Actual cash value would return you to.. Well, not much.