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Boat & Marine Insurance Basics
Boat insurance can be a very confusing topic, especially for first-time boat owners. No standards exist across insurance companies, so it is often up to the boat owners to read the fine print in order to figure out the specifics of their boat insurance policy. Not understanding these subtle differences before you choose an insurance provider can cost you thousands of dollars in the event of a loss. Losses come in two varieties, total losses and partial losses. Generally speaking, total loss policies typically fall into three categories:
- Agreed Value – Agreed value is the simplest and most easily understandable of the total loss policy types. In an agreed value policy, the boat owner and the insurance company agree on a value, prior to the loss. In the rare event that a total loss occurs, the boat owner is paid the agreed upon amount.
- Actual Cash Value – Actual cash value is determined by third party sources such as a used boat price guide and other comparable boats listed for sale. In a policy that is based on actual cash value, the amount a boat owner is paid is based on the value of the boat at the time of the loss. The boat insurance provider will either pay the insured value or the actual cash value at the time of the loss, whichever is lower.
- Boat Replacement – A boat replacement policy replaces your boat with a new boat. This type of coverage is only available to boat owners who purchased a new boat and will only last for the first two to three years of ownership. Once the boat reaches the age where a boat replacement policy is no longer applicable, the policy form will change to one of the two other types.
Although most people buy boat insurance for the rare occasions in which they experience a total loss, the majority of boat insurance claims are partial losses. Partial losses are handled a bit differently than total losses. Similarly to total loss policies, partial loss policies are not standardized and each insurance company may have their own spin. Generally speaking though, the differences boil down to two main points.
- Replacement Cost vs. Depreciated Value – Replacement cost and depreciated value differ in one key aspect. The amount a depreciated value policy pays is subject to depreciation, whereas in a replacement cost policy, depreciation is largely not factored in. Depreciation is calculated by the boat insurance companies using a predetermined, non-published depreciation schedule. Since depreciation reduces the amount you are paid in the event of a partial loss, boat owners would be best served finding a boat insurance provider who offers a replacement cost policy. Despite this difference, most replacement cost plans do not completely omit depreciation from their policy structure. Replacement cost plans tend to state specific parts that are subject to depreciation. These parts generally have shorter life spans, such as canvas, sails, or plastics. It should also be noted that depreciation is not applied to labor, storage charges, and other non real property items.
- Remanufactured vs. New Parts – Some insurance providers will actually discount depreciation if you agree to use a remanufactured part. This reduced depreciation can save boat owners thousands of dollars in a partial loss. There are even some insurance companies that don’t apply any depreciation to remanufactured parts. Again, boat owners would be best advised to seek out boat insurance providers that use the latter and don’t apply depreciation to the amount they pay.
No two boat owners likely have the exact same requirements for a boat insurance provider. Understanding these subtle differences in policies is essential to choosing the best insurance provider to meet your specific needs.
About the Author
United Marine Underwriters is a leading provider of boat insurance for personal watercrafts, powerboats, yachts, houseboats, and variety of other crafts. For more information on how UMU can help solve your boat insurance needs, visit http://www.unitedmarine.net and receive a boat insurance quote in under 90 seconds.