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I’m Renovating My Boat: What About Its Insurance Value?

I am applying for insurance on a boat that I am about to purchase. The insurance application materials look for answers to quite a few mundane questions, but I was wondering about the significance of the purchase price and the value.  This boat is currently in terrible shape, cosmetically, and I intend to invest a lot of time and money into fixing it up after the purchase. Should I give them the actual purchase price on the application, or the expected value after I complete the project?
The short answer for any question regarding marine insurance is to answer every question truthfully and accurately, based upon the objective information available at the time of the application. Purchase price and value are particularly important, but even the “mundane” questions must be answered with the “utmost good faith.” Failure to do so may lead to a denial of coverage.

Most recreational vessels are insured under an “agreed value” policy. This type of insurance is essentially a contract between the insurance company and the boat owner that calls for the payment of an agreed amount in the event of a total loss, without any deduction for depreciation. The agreed value is based upon a good faith estimate of the value of the boat at the inception of the insurance policy. If the damage amounts to less than a total loss, most of the component parts will also be replaced with little or no deduction for depreciation.

A boat may also be insured under an “actual cash value” policy. Premiums for an “ACV” policy are generally lower than for an agreed value policy, because the benefits under the policy are not as generous. Claim payments are calculated by subtracting some amount for depreciation from the replacement value of the boat or the damaged component.

Regardless of whether the boat is insured under an agreed value or ACV policy, the insurance company will evaluate its risk, and therefore base the premium amount on the objective information that is provided by the boat owner on the insurance application, including the value of the boat and/or the purchase price.

This may create a problem for a boat owner who plans to embark on a major renovation project. If the boat owner discloses the actual value of the boat before the start of the project, he or she will risk underinsuring the boat if a loss occurs after a substantial investment has been made in the renovation. On the other hand, if the boat owner states a value to the insurance company based on the condition of the boat upon completion of the project, the insurance company may void the policy and reject a claim, if they find that the project was not completed by the time of the loss.

Under these circumstances, the boat owner’s best approach is to maintain a dialogue with his or her insurance broker and, if possible, with the insurance company itself. This will allow the insurance company to keep up with the value of the boat as the project evolves. It will also ensure that they are aware of the project, which may present certain risks of its own. As they consider this information, they may require the boat to be surveyed at various stages during the project and the value of the boat to be re-stated from time to time.

This process may seem a bit cumbersome, and it will probably cause the premium to be increased as the insured value of the boat increases. But when compared to a possible rejection of a claim, it is a small price to pay. Talk to your insurance broker or a maritime attorney for more information regarding your particular circumstance.

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