What is Renters Insurance and Why Do I Need It? PART II

Renters Insurance

In our last blog post we discussed why you need renters insurance, as well as explained the basics of what is and what is not covered under a standard renters insurance policy. In this blog post we will dive a bit deeper and address some of the more nuanced aspects of a renters insurance policy; specifically, we will touch on the coverage variances of an “All-Risk” versus a “Named Peril” policy and the reimbursement differences between “Actual Cash Value” and “Replacement Cost Value” policies.

What are the Variances in Coverage Between an “All-Risk” and a “Named Peril” Policy?

The differences in coverage between an “all-risk” policy and a “named peril” policy is actually somewhat simple. If you have a renters insurance policy that is “all-risk”, then anything that causes damage (a “peril”, in insurance lingo) to your personal property is covered, unless said “peril” is specifically listed as an “exclusion”. The same principle applies to any peril that makes your apartment uninhabitable and forces you to stay in a hotel and eat-out; as long as the peril that caused your home to become uninhabitable is not specifically excluded within your policy, you will likely be eligible for reimbursement of any such expenses.

On the flip-side, “named-peril” renters insurance policies will only cover property loss or expense reimbursement of perils that are specifically named (in clear and concise writing) in your policy. Additionally, with a named-peril policy, the responsibility to prove that said loss and/or expense was, indeed, caused by one of the policy’s named perils falls onto you, the policy-holder.

What Exactly is a “Peril”?

Perils are the incidents that are covered by your renters insurance policy. As discussed above, depending on the type of policy you purchase certain perils may or may not be covered. Of course, as with any insurance policy, the best practice to ensure that you have the protection you and your family need is to very carefully read through your policy in its entirety. That being said, most renters insurance policies will typically cover damage that is the result of the following perils (unless explicitly stated otherwise):

  • Weather-Related Incidents: Hail, windstorms, lighting and water-damage NOT caused by floods
    (Remember, earthquakes and water-damage resulting from flooding require additional coverages, also know “riders”)
  • Fire and Smoke Damage
  • Electrical Surges
  • Explosions
  • Theft and/or Vandalism
  • Falling Objects

Obviously, as we discussed in “What is Renters Insurance and Why Do I Need It? PART I”, if any of the perils listed above occurred as a result of (or could have been prevented were it not for) your own negligent actions, then any/all coverage would be null and void.

What are the Reimbursement Differences Between “Actual Cash Value” and “Replacement Cost Value” Policies?

When purchasing a renters insurance policy, it is important to understand the difference between an “Actual Cash Value” and a “Replacement Cost Value” policy.

An actual cash value policy covers the actual cash value of your property; however, it is imperative that you understand that the “actual cash value” is NOT what you originally paid for the property in question. Instead, actual cash value refers to whatever the underwriting insurance company deems to be an accurate appraisal of the actual cash value of said item, today, accounting for depreciation, inflation, etc.

Alternatively, a policy that specifies “replacement cost value” coverage means that the insurer is responsible to cover whatever the costs associated with replacing (or even repairing to its original condition) the damaged item. Simply put, with a replacement cost value policy you needn’t worry about an item’s depreciation in value, whereas with an actual cash value policy you absolutely do.