When reviewing your marine insurance policy, it is important to understand how your investment is protected. Most major yacht insurance companies offer a few different total loss settlement options. These options include actual cash value, agreed value and total loss replacement coverage. Here is some more detail that will help you determine what option is best for you.
Agreed value
Agreed value means that if your vessel is deemed a total loss, no depreciation will be taken and the full insured value will be paid out by the insurance company. This is widely considered the best option when insuring a yacht because it means you are fully indemnified for a total loss on your vessel, preventing the need for extra gap insurance. (Gap insurance covers the gap between your loan amount and the amount your insurance company will pay.) For partial losses, replacement cost coverage is generally used. Items that wear such as sails, canvas, batteries, outboard engines and machinery will be excluded.
Actual Cash Value
In the event of a total loss with this coverage, the boat owner will receive the insured value of the boat or the actual cash value (depreciated value), whichever is less. For example, if your vessel is insured for $75,000 and you have a total loss, the depreciated value of your vessel may only be $65,000 and the insurance company will pay the lesser amount. Some insurance carriers may also settle partial losses on an actual cash value/depreciated basis. If you select actual cash value coverage, gap insurance may be required by your lender.
Total Loss Replacement
This is an option if you are insuring a boat (a vessel 26’ in length or less). The carrier will replace your boat with a new boat that is, to the greatest extent possible, the same make, class, size and type, with comparable equipment. This coverage is typically available when a boat is less than five years old, and with rising new boat prices, it is an excellent option.
Regardless of which option you choose, it’s important to know what coverage you are purchasing. If a claim does occur, you will better understand how your insurance company will react.
By: Ben Belyea
Marine Underwriter
Ben grew up in a boating family and has piloted yachts and boats of all sizes throughout his life. He and his wife enjoy spending time on their boat whenever possible. A former All-American downhill skier and graduate of St. Olaf College, Ben understands the boating lifestyle and enjoys helping boaters find the insurance coverage that best fits their needs.
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