In this series on boat insurance, BoatingLocal consulted with Jay Kay, president of Stafford Marine Insurance (a BoatingLocal sponsor), who explained the nuances of valuation when selecting a boat insurance policy:
Study Your Terms:
One potential stumbling block when purchasing boat insurance is the “valuation clause”. In the event of a complete loss, many boaters are unaware that insurers will subtract the depreciation of the boat based on its age and condition.
“In other words,” explains Kay, “[the insurance company] may only issue a check for the value of the boat based on the current market value listed in the ‘BUC Book’ [the marine version of the Blue Book for cars]. Subsequently, many boaters end up paying too much on their policy as the boat depreciates over the years, and do not receive the replacement value they expect if their boat sinks, is stolen or catches fire in a total loss.”
For example, if you paid $100K to purchase a boat 5 years ago, the insurance company is not going to give you $100K if the boat is sinks, is stolen or is otherwise totaled. The insurer will use the age and condition to determine the current value, and that’s the amount you might receive a check for, less your policy deductible.
“Consequently, there are a lot of people who overpay on their insurance policies, or think they will receive full replacement value if something happens to their boat,” adds Kay. “We advise our clients of these things, whereas many companies do not. Re-evaluate the policy every year to make sure you’re not overpaying.”
On a partial loss, such as a theft of electronics, most good policies provide replacement cost without depreciation. But be careful, as not all policies do. Read the fine print, or ask.
If you own a classic boat, a restored boat, or a boat with sentimental value that would take a lot of money to replace, you may need an “agreed-value” policy. With this type of policy, you and the insurance company agree on the value of the boat and what it would cost to replace in the case of a total loss.