When you file a renters claim, the payout method on your policy decides how much you get back.
Actual cash value (ACV)
Pays what your item is worth today, after depreciation. A five-year-old TV that cost $800 might pay out only $300. ACV policies are cheaper but leave you short.
Replacement cost
Pays what it costs to buy a new equivalent today, with no depreciation. That same TV pays around $800 (minus any deductible). Premiums are slightly higher, usually a few dollars a month.
Which to choose
For most renters, replacement cost is worth the small extra cost. The gap shows up exactly when you need it, after a fire or theft wipes out your belongings.
How replacement cost claims work
Many insurers first pay the depreciated value, then release the rest once you actually replace the item and submit receipts.