Won't be much longer now until "she's back in the water"and another boating season starts. You are already thinking about what needs to be done, either by yourself or your marina, to get your boat all ready for a season of "clear sailing". Now might be a good time to dust off your insurance policy and carefully go over it. If the unfortunate does happen, you don't want any last minute surprises!
One area of watercraft insurance that may seem obvious yet often gets overlooked is the valuation or basis of claim payment clauses – how MUCH am I insured for? This would seem to be obvious, but not always.
The "How Much?" usually boils down to the difference between "replacement cost" and "actual cash value" (ACV). Without analyzing the specific definitions of several insurers, replacement cost is generally the cost to replace or repair new without deductions for depreciation, subject to the limit of insurance. ACV or "market value" generally means the cost to replace or repair, less depreciation for age, condition, resale value, obsolescence and normal life expectancy, and again always subject to the limit of insurance as the maximum. As an ACV example, if a boat has a life-expectancy of 20 years and was purchased new for $80,000 the simple value after 10 years might be $40,000.
Consider these situations involving a total loss to illustrate -
Your boat was purchased 11 years ago for $40,000 and you have kept the insurance limit at this to reflect this "replacement cost" (at the time you purchased it). Sounds OK so far, right? After a hurricane tears through cottage country your boat is destroyed. The insurer only offers you ACV of $20,000 based on what your actual policy states. In checking your policy, you realize that the "replacement cost" provision drops off once the boat exceeds 10 years of age. Ouch! Tip. If you know your policy has this provision, consider reducing the limit, with a resulting reduction in premium.
In a similar situation regarding the total loss and replacement of a 3-year-old boat insured for $80,000 one insurer has offered to settle @ $80,000, another insurer has offered to settle at $92,000 and another insurer at $115,000. In the two latter cases, the settlement amount was over the limit of insurance! Some policies contain clauses allowing a generous inflation or replacement benefit subject to certain qualifications e.g. if the boat is replaced with a similar new boat, if it is newer and purchased new, and insured with same insurer from the start.
How about this? Imagine your prized metal-flake finish $80,000 bass-boat is destroyed. There are special clauses that exist which limit the amount payable for certain types of boats such as metal-flake or inflatables, strictly to actual cash value, and not replacement cost. That 8-year-old $80,000 bass boat might now only be worth $50,000!
If you decide not to replace a boat after it has been destroyed, opting instead for a cash settlement, loss payment provisions also typically dictate that settlement will be made on an ACV basis. Special valuation clauses also generally apply to sails, covers, trailers, tenders & auxiliary outboard boats – usually ACV.
The replacement cost provisions can vary considerably from one insurer to another – no age limit, 10 years, 15 years, always best to check your policy.
Like any other product or service, boat insurance exists to pay claims fair and square, subject always to the conditions and exclusions of the policy. Issues generally only arise when expectations are not met often due to a lack of communication or taking the time to read through policies. If the boat has any value of significance, it is important that you take the time to read your policy and discuss your needs and requirements with your broker.
PS. Reminder to check for your winter lay-up warranty. Putting your boat in the water before March 31st, April 1st, April 15th, or whatever the date in your policy is, could result in doing so without insurance.
The Insurance Advisors @ Guthrie Insurance Brokers Ltd
Toronto – (416) -487-5200 – Richmond Hill – (905) 313-8481
E & O E