Which valuation method typically results in lower insurance payouts due to depreciation?

The actual cash value (ACV) method is the correct answer because it accounts for depreciation when determining the value of the insured property. ACV is calculated by taking the replacement cost of the item and subtracting any depreciation based on the item's age and condition at the time of the loss. This means that the insurance company pays out less than the full replacement cost, reflecting the reduced value of the item due to wear and tear.

In contrast, methods such as replacement cost typically cover the full cost to replace the damaged or lost item without considering depreciation, leading to higher payouts. The stated amount method relies on a pre-agreed value, which may not truly reflect the depreciated value. Similarly, functional replacement cost focuses on replacing an item with a similar but less expensive item that performs the same function, which also does not emphasize the depreciation aspect the way ACV does. Thus, the actual cash value method usually results in lower insurance payouts due to its inherent depreciation factor.