Do I Need Replacement Cost or Actual Cost Renters Insurance in Georgia?

In most situations, we recommend replacement cost renters insurance coverage for Peach State residents who rent their living spaces. But both forms of claims payment—replacement and actual cost—have advantages and possible drawbacks. 

Let’s start with an explanation of both options and explore the reasons why one or the other might be the better choice for you when filing a claim. 

What’s Meant by Replacement and Actual Cost Renters Insurance in GA? 

Both describe the payout you’ll receive from your insurance company for your covered losses, taking into consideration your deductible and coverage limits (more on both of these terms later). This payment might be compensation for loss due to fire, flooding, smoke damage, theft, vandalism, or any of the countless other ways you could experience the damage, destruction, or loss of your personal possessions. 

One key question your insurance agent will ask you is whether you prefer a replacement or an actual cost policy. Here’s a brief description of each.

Actual Cost Plan 

With this coverage, your insurance company will replace the value of the lost or damaged item minus its depreciation. Depreciation recognizes that most of your possessions will lose some or a great deal of their financial value over time. Your five-year-old car, television, and computer, for instance, are currently worth less—maybe quite a bit less—than what you paid for them when they were new. 

Let’s say a water pipe bursts and your years-old flat-screen TV is destroyed in the resulting water damage. With an actual cost renters insurance policy, you’d be compensated the dollar amount that your older TV is now worth. 

Replacement Cost Plan 

If you were to carry a replacement cost renters insurance policy, in that same scenario with the water-damaged flat screen television, your insurance company would pay you the cost of replacing your TV on the current market. In other words, your insurer would figure out and send you the sticker price for that same make and model of TV if you were to go into the store and buy it new today. 

Replacement or Actual? Which is Better? 

When it comes to a side-by-side comparison, you can see that replacement cost is a better deal when making an insurance claim. You’ll get a higher payout and be able to replace your lost item without having to dig deeply into your own pocket to make up the difference. 

Of course, you can probably also guess that replacement cost premiums are higher than actual cost coverage. It’s true, but the good news is that you’ll only pay about ten percent more for replacement cost value. 

What Do Deductible and Coverage Limits Mean? 

Both terms were mentioned earlier in this post. It’s important as a shopper for renters insurance that you understand your choices in both areas and how they affect what you’ll pay for coverage. 

Deductible 

Your deductible is the financial amount that you agree to pay for a covered loss before your insurer pays the first dollar. So, if you have a $250 deductible, you’ll be responsible for that amount before your insurer pays the rest. 

In the above example, if your burst water pipe caused $2,000 in damage, your insurance company would pay that amount minus your $250 deductible, or $1,750. 

Selecting your deductible amount can be an effective cost-saving strategy. The higher your deductible, the lower your premiums since your insurer will be responsible for lower claims costs. On the other hand, if you set your deductible at, let’s say, $1,000, would you be able to come up with that kind of money immediately if you had an expensive water damage loss? 

Your best strategy is to set your deductible as high as you can realistically afford to pay in the case of a covered loss.

Coverage Limit 

This is simply the maximum amount your insurer agrees to pay for a covered loss. The higher the coverage limit, the higher your premium. Therefore, you don’t want to set the limit too high. But, on the other hand, you don’t want it to be so low that it doesn’t begin to cover the cost of your possessions in a total loss. 

The best way of determining your coverage limit is to first conduct a home inventory. This is a way to get a ballpark estimate of what it would cost to replace your possessions. There are several home inventory apps on the market that can guide you through this savvy activity. 

If you need to reduce premium rates further, take into consideration only the possessions that you’d need to replace immediately. That might include your smartphone and computer, appliances if you own them, and your work wardrobe. 

However, you’re likely to find that you have no need to minimize your coverage since renters insurance is very affordable. 

Renters Insurance in Georgia is Cheap 

Statistics from 2019 show that renters insurance for Georgia renters is just $209 a year, on average. That’s less than $18 a month. So you get a lot of financial security for a very low investment. 

Discuss your specific needs with an independent insurance agent who can help you determine the renters insurance coverage that’s right for you—then find the most affordable coverage from competing providers.