Dear Dr. Per Cap:

My apartment got broken into and my renter’s insurance policy says I will receive “cash value” for my TV and some other stolen electronics.  Will that be enough money to replace them?

Signed,

Stressed Renter

Dear Stressed Renter

I am so sorry to hear this happened.  I’ve had an apartment broken into and know the gut punched feeling of coming home to the aftermath of a burglary.  Material possessions can always be replaced but thoughts and prayers to the safety and well-being of your family.

People don’t usually pay much attention to their insurance policies until it comes time to file a claim.  Whether auto, homeowners, or renters insurance it’s easy to focus on the cost of monthly premiums rather than the fine print that explains the details of your coverage. 

Unfortunately, it’s often a rude awakening when discovering policies that contain high deductibles, limited or no coverage for certain mishaps, and other unexpected surprises.

If you look closely, renters’ insurance policies usually offer two coverage options for stolen or destroyed personal property – Actual Cash Value (ACV) or Replacement Cost Value (RCV).  ACV is the type of coverage described above.  It pays for the original cost of the item or its current value based on depreciation.  This means your insurance will pay less than what your TV cost brand new because TV’s and other electronics usually depreciate quickly.  So no, you won’t receive enough money to replace your stolen TV and other gear with new products offering similar features.

Actual Replacement Cost, on the other hand, will pay the cost of purchasing the same or similar item new.  Obviously, when it comes to electronics, RCV is the better option because it will pay enough to buy brand new equipment.

I know it stings but bear in mind your Actual Cash Value policy was probably a little bit cheaper than a comparable Replacement Cost Value policy and now you know why.  An insurance company makes up the difference when it pays out a less costly ACV claim.

Hope this wasn’t too hard a lesson to learn, and going forward remember that insurance is a financial product.  Just like with a bank account or credit card you want to understand the features when buying or renewing any insurance policy. 

It’s also smart to keep an inventory of all your important belongings along with their purchase price, and an estimate of how much it would cost to replace them.  Nothing fancy, just make a simple list.  If it’s easier, you can also take photos.  In fact I know some people who walk through their apartments with a video camera capturing images while recording voice descriptions of their property.  Just be sure to save the files in a safe place.

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.