What is an 'actual cash value' (ACV) renters insurance policy?

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There are two different ways a renters insurance policy can determine how much to pay.

A "replacement cost value" (RCV) policy, which is the more expensive option, will pay you the amount it would cost to replace your belongings if you had to buy them again. In other words, if your sofa originally cost $2,500 six years ago, the policy would pay you $2,500 or higher (minus your deductible) because that's what it would cost to replace the sofa today.

An "actual cash value" (ACV) policy (also known as an "actual cost value" or "depreciated" cost policy),which is the cheaper option, will pay you the current value of your belongings after depreciation. For example, if your six-year-old sofa cost $2,500 but its current resale value is only $500, the policy will pay you $500 (minus your deductible).