Boat ownership: Let’s talk insurance

Feb 10, 2022

by Jared Chartrand

With the boating season getting ever closer, it’s important that you understand the language of your insurance policy. When shopping for marine insurance this season here are a few insurance terms you may want to become familiar with to ensure that you are not purchasing and insurance policy that will fall short when a claim occurs.

If you think about the insurance contract that you are purchasing on its simplest terms, it is an agreement between you and the insurance company to pay for loss or damage resulting from an insured peril. The type of policy you have purchased will determine the amount of money that you will receive from the insurance company. There are three different types of policies that you can qualify for based on the type, age, and value of the watercraft.

Actual Cash Value Coverage (The consumer absorbs the depreciation)

The settlement of a claim will consider such things as the cost of replacement less any depreciation and in determining the depreciation the insurance company will consider the condition immediately before the damage, the resale value and the normal life expectancy.

The insurance company will take the insured value of the watercraft package shown on the policy and apply the required depreciation to settle the loss. Therefore, if the boat has depreciated you will receive less that the amount stated on the policy. This would apply to a total or partial loss claim under the policy.

Agreed Value Coverage (Insurance Company absorbs the depreciation)

The settlement of a claim will not take into account depreciation. The insurance company agrees to settle your claim for the amount of insurance listed on your policy without the application of depreciation.

The insurance company will pay out insured value of the watercraft package shown on the policy. If the boat has depreciated the insurance company will absorb the depreciation but you will never receive more than what is stated on the policy. This would apply to a total or partial loss claim under the policy.

Guaranteed Replacement Cost Coverage (Insurance company pays inflation cost)

If there is a total loss of the vessel within the first three years, the applicable time frame for this special endorsement, the client will be entitled to the amount of insurance shown on their policy plus the amount required to replace the vessel with a current model year vessel of like kind and quality. This special endorsement to the basic policy is added at the discretions of the client, and serves as an ‘inflation protection’. It is not automatically included on every policy and some conditions will apply for you to qualify for the coverage.
The insurance company will pay out insured value of the watercraft package shown on the policy. If the boat has gone up in value the insurance company will also pay the additional inflation cost to replace the boat. The insurance company will absorb the depreciation and also pay the additional inflation cost to replace your watercraft. Under this additional coverage you can receive more than what is stated on the policy. This would apply to a total or partial loss claim under the policy.

As your boat ages it will start to depreciate in value, at the same time the new watercraft that are being sold on the market are appreciating in value due to inflation. Make sure you look at all your options when purchasing your marine insurance policy so that when a claim occurs you understand how your insurance policy will respond to settle you loss.

Jared Chartrand, President of Northstar Marine Insurance, brings two decades of marine experience to his position.