Boat Insurance Policies
When discussing how you will be paid in the event of a loss, it is first important to figure out whether you have a partial or total loss. The three types of boat insurance policies “Agreed Value, Actual Cash value, and Total Replacement Cost” will all be in effect in the event of a total loss. However, depending on the company, each policy reacts differently when dealing with a partial loss. Whichever policy you have, be sure to check with your company and review how you will be paid in the event of a loss.
Agreed value policies normally pay the amount shown on the policy if the boat is considered to be a total loss. In other words, the insurer agrees to pay the stated amount on the policy if there is a total loss. Under an agreed value policy, damage resulting from a partial loss is generally paid for on a replacement cost (new for old) basis, minus your deductible. For instance, physical depreciation will not be factored into determining the value of the lost or damaged items. However, some items that are subject to higher amounts of normal wear and tear, such as canvas, sails, trailers and some machinery, may be subject to allowance for depreciation in the event of a covered loss.
Actual Cash Value
An actual cash value policy provides less coverage than an agreed value policy, but generally at a lower cost. An ACV policy provides coverage up to the current market value of the vessel in the event of a total loss, taking into account depreciation and the condition of the boat at the time of the loss. Payments made for partial losses are usually reduced based upon physical depreciation of the lost or damaged items, and the policy deductible is also applied.
While an agreed value policy typically costs the boat owner more, and provides broader coverage, an actual cash value policy may suit the needs of an owner looking for an economical alternative. Your insurance professional can explore these options with you.
Total Replacement Value
Total Replacement Cost is the newest type of policy and agrees to replace your boat with a new boat of similar make and model. This coverage can be purchased only when the boat is new and the coverage is only available until the boat is two or three years old. For insurance, under a Total Replacement Cost policy, a two-year old boat worth $70,000 today but worth $85,000 brand new will be paid $85,000 in the event of a total loss. However, once the boat reaches the age, usually more than 3 years, where replacement cost is no longer available, the policy will be changed to Agreed Value or Actual Cash Value.