Actual Cash Value (ACV):

ACV takes into account the depreciation of the item, meaning it factors in the loss of value due to age, wear and tear, or obsolescence.

The payout is based on the current market value of the damaged item, which is typically less than the original purchase price.

Example:

If a 5-year-old appliance is damaged, the ACV payout would reflect the depreciated value of that appliance, not the cost to buy a new one. 

Replacement Cost Value (RCV):

RCV does not deduct depreciation from the payout, meaning you receive the full cost to replace the damaged item with a new one.

RCV generally results in a higher payout than ACV because it doesn't consider depreciation. It will pay the cost to buy a new appliance in full.