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There are three types of boat insurance policies. If you suffer a total loss to your boat, your claim will be settled according to the type of policy you have. The three policy types are:

• Agreed Value
• Replacement Cost Value
• Actual Cash Value

In explaining how these three policies differ, I will use a three-year-old boat that was purchased new and insured for the purchase price of $40,000.

Agreed Value
Agreed Value is the most common and generally the most desirable type of boat insurance policy. You and the insurance company agree on the value of the boat when the policy is written. Using our example, if you suffered a total loss, you would be paid $40,000. Even if three years has passed and the current value of your boat is only $30,000, you would be paid $40,000.

Replacement Cost
In the event of a total loss, a Replacement Cost policy will replace your boat with a new boat of the same make and model. If our three-year-old, $40,000 boat sells new for $45,000 today, a Replacement Cost insurance policy would pay $45,000 for a new boat. In most cases, the insurance company will state a maximum percentage (20% for example), they will pay over the amount insured. So if boat is insured for $40,000, $48,000 would be the maximum the policy will pay regardless if the replacement cost is more.

Replacement Cost policies are fairly new and not offered by most insurance companies. The companies that offer the coverage require that you insure the boat with them when it is new. Once the boat reaches two or three years old, the Replacement Cost policy will be changed to an Agreed Value or an Actual Cash Value policy upon renewal.

Actual Cash Value
Actual Cash Value is the least desirable type of boat insurance policy. Marine insurance companies generally do not write Actual Cash Value policies but you may see them used for aged boats or performance boats. Be careful because Actual Cash Value is commonly used by non-marine insurance companies (auto or home). Actual Cash Value is determined by the market value of the boat at the time of the loss. In our example, if the boat is insured for $40,000 and the Actual Cash Value of the boat is now $30,000, $30,000 is the most you will be paid regardless of how much the boat is insured for. The insurance company determines the Actual Cash Value based on values published in used boat price guides and the prices that similar boats are being sold for.

Remember all boat insurance policies are different. Make sure you and your agent have a complete understanding of the coverage being offered. Price is always important but should not be the most important concern when choosing a boat insurance policy.

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