Agreed vs Cash Value: What's the Difference?

Agreed value and cash (or actual cash) value are two ways to set the value of your boat for insurance. The difference is simple: agreed value is the amount you and your insurer agree on before you buy the policy, and that amount doesn’t change during the policy term. Cash value is the current market value of your boat at the time of a claim, which can be lower due to depreciation. This means that with agreed value, you’re guaranteed to get the full amount you agreed on in case of a total loss, while with cash value, you might get less if your boat has lost value over time.

Agreed Value vs. Cash Value: What You Need to Know

Agreed Value Explained

Agreed value is a fixed amount that you and your insurer agree on when you buy the policy. This amount is based on the boat’s condition, age, and market value at the time of purchase. It doesn’t change during the policy term, even if the boat depreciates. This type of coverage is ideal for boat owners who want peace of mind knowing that they’ll receive the full agreed amount in the event of a total loss.

Cash Value (Actual Cash Value) Explained

Cash value, also known as actual cash value (ACV), is the current market value of your boat at the time of a claim. This value takes into account depreciation, wear and tear, and market conditions. Because the value can be lower than what you paid for the boat, cash value policies may pay out less in the event of a total loss. This type of coverage is often cheaper than agreed value but carries more risk for the boat owner.

Why This Matters for Your Boat Insurance

Depreciation and Total Loss

Boats, like cars, lose value over time. If you have a cash value policy and your boat is totaled, the insurer will pay you the current market value, which may be significantly less than what you paid for it. With agreed value, you’re guaranteed to get the full amount you and your insurer agreed on, regardless of depreciation.

How the Deductible Works

Whether you choose agreed or cash value, your deductible will apply. The deductible is the amount you pay out of pocket before your insurance kicks in. For example, if you have a $2,000 deductible and your boat is damaged in a storm, you’ll pay the first $2,000 of the repair costs. The deductible applies to both partial and total losses.

Salvage and Wreck Removal

In the case of a total loss, the insurance company may take possession of the wreck for salvage or removal. With agreed value, the insurer pays you the full agreed amount and keeps the wreck. With cash value, the payout is based on the current value, and the insurer may deduct the salvage value from the payout. This can further reduce the amount you receive.

Agreed Value vs. Cash Value in Practice

Scenario: Total Loss with Agreed Value

You own a 10-year-old 40-foot yacht that you and your insurer agreed is worth $200,000. You have an agreed value policy with a $2,000 deductible. One day, a fire destroys the boat completely. The insurer assesses the damage and declares it a total loss. Since you have an agreed value policy, you receive the full $200,000, minus your $2,000 deductible. You walk away with $198,000 to replace your boat.

Scenario: Total Loss with Cash Value

You own the same 10-year-old 40-foot yacht, but you have a cash value policy. The current market value of the boat is $120,000 due to depreciation. You also have a $2,000 deductible. When the same fire occurs, the insurer declares it a total loss. However, because you have a cash value policy, the payout is based on the current market value. You receive $120,000 minus your $2,000 deductible, totaling $118,000. This is $80,000 less than what you would have received with an agreed value policy.

Scenario: Partial Damage with Agreed Value

Your 40-foot yacht is damaged in a collision. The agreed value of the boat is $200,000, and the repair costs are $15,000. You have a $2,000 deductible. The insurer pays the difference between the repair cost and your deductible, which is $13,000. You pay $2,000, and the boat is fixed. Since the damage is not total, the agreed value doesn’t come into play, but the policy still covers the full repair cost based on the agreed amount.

Key Concepts to Understand

Hull & Machinery Cover

Hull and machinery cover is the most basic type of boat insurance. It protects your boat’s structure and mechanical systems from damage caused by accidents, storms, and other perils. Whether you choose agreed or cash value, hull and machinery cover is essential for protecting your investment.

Protection & Indemnity (P&I)

Protection and indemnity (P&I) insurance covers third-party liabilities, such as damage to other boats, injuries to people, and pollution. This type of coverage is separate from hull insurance and is often purchased through a P&I club. P&I is important for any boat owner who wants to protect themselves from expensive legal claims.

Named-Storm Deductibles

Named-storm deductibles are a special type of deductible that applies only to damage caused by hurricanes or other named storms. These deductibles are often a percentage of the boat’s value, such as 5% or 10%. For example, if your boat is valued at $200,000 and you have a 5% named-storm deductible, you’ll pay $10,000 out of pocket for any damage caused by a named storm.

Lay-Up Periods and Lay-Up Warranty

Lay-up periods are times when your boat is not in use, such as during the winter months. Some insurers offer a lay-up warranty, which allows you to reduce your premium in exchange for keeping the boat in a dry, secure location. This can be a cost-effective way to protect your boat during off-season periods.

Choosing the Right Coverage for You

Agreed Value: When to Choose It

Agreed value is best for boat owners who want to be sure they’ll receive the full amount they expect in the event of a total loss. It’s ideal for newer boats or those that are well-maintained and retain their value. Agreed value policies are more expensive than cash value policies, but the peace of mind is worth the extra cost for many owners.

Cash Value: When to Choose It

Cash value is a good option for boat owners who want to save money on their insurance premiums. It’s suitable for older boats that have already lost a significant amount of value. However, keep in mind that you may receive less in the event of a total loss, so it’s important to weigh the cost savings against the potential payout.

Comparing Agreed Value and Cash Value

Feature	Agreed Value	Cash Value
Value at time of claim	Fixed amount agreed upon	Current market value
Depreciation	Ignored	Considered
Cost	Higher premium	Lower premium
Guaranteed payout	Yes	No
Best for	Newer or well-maintained boats	Older or depreciated boats

Final Takeaway

Choose agreed value if you want to be sure you’ll receive the full amount you expect in the event of a total loss. Choose cash value if you want to save money on your insurance premiums, but be aware that you may receive less in the event of a total loss. Always review your policy carefully and understand the terms before making a decision. Your boat is a big investment—make sure it’s protected the way you want it to be.