Most people think about a total loss when discussing insured value and how a boat insurance policy will pay. While important, the majority of claims are partial losses, not total losses. Depending on how your policy details, those details could cost you several thousand dollars above your deductible.
Boat Insurance policies have two different ways to pay in the event of a partial loss. One is to replace the damaged items new for old without deducting for depreciation. The second is to depreciate the damaged items in the event of a loss.
The definition of Depreciated Value is Replacement Cost less depreciation. Most boat insurance companies use a non published depreciation schedule that is applicable to partial losses. An example may be 7% depreciation per year on a stern drive or 15% depreciation per year on canvas. The desirable policy is one that pays replacement cost for a partial loss when available.
Insurance companies will apply Replacement Cost and Depreciated Value differently.
Some boat insurance companies do not provide replacement cost coverage for partial losses. If the boat is insured on this policy form, then no matter the type of loss, the replacement parts are subject to depreciation. If the part costs $3,000 and is subject to 20% depreciation, you would be paid $2,400, less $400 depreciation, less your deductible.
Some boat insurance companies provide replacement cost for partial losses until the boat reaches a certain age. The age will vary with each insurance company. Once a boat reaches that age, all partial losses are settled on an actual cash value.
Typically boat insurance companies that provide replacement cost for partial losses name specific items that are subject to depreciation. Sails, trailers, plastics, and canvas are examples of specifically named items. These items generally have a limited life span. They also specifically name items to be depreciated based on the item’s age. Outboards, stern drives and internal machinery are examples of items that change from replacement cost to depreciated value based on their age. Each insurance company has different specifically named items and different ages when items change from replacement cost to actual cash value.
Replacement Cost for a partial loss is the most desirable coverage when available. A depreciated value can cost you several thousand dollars. Below are examples to help explain how replacement cost vs. depreciated value work.
Scenario # 1 is an 11 year old boat with a $500 hull deductible that hits a submerged object. The replacement cost of the damage to the prop, shaft and strut is $6000.
Insurance company A provides replacement cost coverage until the vessel is three years old. The damaged prop, shaft and strut are 11 years old and subject to depreciation. Insurance company A will deduct 50% depreciation or $3000 from the $6,000 replacement cost. You would be paid $2,550 ($6,000 replacement cost, less $3,000 depreciation, less your $500 deductible).
Insurance company B provides replacement cost coverage with specific named items subject to depreciation. The prop, shaft and strut are not specifically named items and are therefore settled on a replacement cost. Insurance company B would pay $5,750 ($6,000 less your $250 deductible).
Scenario # 2 is an 8 year old stern drive boat with a $1000 hull deductible that hits a submerged object. The replacement cost to the stern drive is $9000.
Insurance company A provides replacement cost coverage until the stern drive is six years old. They will apply 60% depreciation (7.5% per year) to the $9000 replacement drive and then apply the $500 deductible. Insurance company A will pay $3,700 ($9,000 less $4,800 depreciation, less $500 hull deductible).
Insurance company B provides replacement cost coverage until the stern drive is 10 years of age. They will pay $8,500 ($9,000 less the $500 hull deductible).
Scenario#3 is a boat with a $1000 hull deductible that suffers wind damage to the fly bridge enclosure. The fly bridge enclosure is 2 years old and the replacement cost is $6000.
Insurance company A provides replacement cost until the fly bridge enclosure is three years old. They will pay $5,500 ($6,000 less the $500 hull deductible).
Insurance company B provides replacement cost but specifically names canvas as a depreciated item. Insurance company B will apply 20 percent depreciation to the replacement cost. They will pay $4,500 ($6,000 replacement cost, less $1,000 depreciation, less the $500 hull deductible).
Other items to be considered for example, if the stern drive has to be replaced, most companies will apply a reduced depreciation if you agree to a remanufactured stern drive. This can save thousands of dollars in depreciation.