When you rent an apartment, do you realize that your landlord's insurance policy will not cover your personal belongings? If a fire burns down the apartment, your landlord will receive insurance money to rebuild or repair, but you will not receive any money unless you have your own renter's insurance policy. Therefore, you should purchase a renter's insurance policy for protection, and you should realize the difference between cash value and replacement coverage when you get your policy.
What do these terms refer to?
The terms cash value and replacement coverage refer to the way insurance companies calculate the value of losses in a claim. If your apartment burns down, for example, and you lose everything, you would need to submit a list of your belongings to the insurance company. When they receive the list, they will calculate how much money to give you by going through each item on the list and attaching a value to it. The way they calculate the value of each item will highly depend on whether you have cash value coverage or replacement coverage.
What is the difference between these types of coverages?
There is a major difference with the way these two types of coverages work. With cash value, the insurance company will value each item at its actual value. For example, if you had a used couch in your apartment that was 20 years old, the couch was probably not worth a lot of money. In this case, the insurance company might state that it was worth $20, and this is the amount of money you would get from this for this particular item.
If you had replacement coverage, the insurance company views the items in terms of how much it would cost for you to replace every item you lost. In the couch example, instead of getting $20 for the couch, replacement value coverage might end up calculating the amount of $800, as this might be how much it would cost for you to replace the item. If you had replacement coverage, you would receive $800 for the couch instead of $20.
Is there is a cost difference?
It will cost more to have a policy that offers replacement coverage, but it would likely be worth paying the extra amount, as it would offer more protection for you.
Having an insurance policy that protects your things when you rent an apartment is important if you own things, and you can get a policy by contacting a homeowner's insurance agency of your choice.