What Is an Agreed Value Clause?

An agreed value clause in yacht insurance is a part of your policy that sets a specific, pre-determined value for your boat. This means that if your boat is damaged or destroyed, the insurance company will pay you that agreed amount, not what the boat is worth at the time of the claim. It’s a way to avoid disputes over the boat’s value after a loss and gives you more predictable coverage.

Why an Agreed Value Clause Matters for Yacht Owners

When you buy yacht insurance, the value of your boat is a key part of your coverage. Without an agreed value clause, your insurance might pay out based on the actual cash value (ACV) of your boat at the time of a loss. That means the payout could be less than what you expect, especially if your boat has depreciated or if market conditions have changed. An agreed value clause locks in a specific amount you and your insurer agree on, so you know exactly what you’ll get if you need to make a claim.

Agreed Value vs. Actual Cash Value (ACV)

What is Actual Cash Value?

Actual Cash Value (ACV) is the current market value of your boat, minus depreciation. It’s what your boat is worth at the time of a loss. For example, if you bought a $500,000 yacht five years ago, and it’s now worth $350,000 due to depreciation, your ACV would be $350,000. If you have ACV coverage and your boat is totaled, you’d get $350,000, not the original $500,000.

What is Agreed Value?

Agreed Value is a fixed amount you and your insurer agree on when you buy the policy. It doesn’t change with market conditions or depreciation. So if you and your insurer agree on a value of $500,000 for your yacht, you’ll get that full amount if your boat is totaled, regardless of how much it’s depreciated or what it’s worth in the market at the time.

How an Agreed Value Clause Works in a Claim

Let’s say you have a $1 million yacht and an agreed value clause that sets the value at $1 million. If your boat is destroyed in a storm, your insurer will pay you the full $1 million, minus your deductible. This is different from ACV, where the payout could be significantly less if the boat has depreciated.

Key Concepts Related to Agreed Value

Hull & Machinery Cover

Hull & Machinery is the most basic type of yacht insurance. It covers physical damage to your boat’s hull and mechanical systems. If you have an agreed value clause, this coverage will pay out the agreed amount for repairs or total loss, not the current market value.

Deductible / Excess

Your deductible is the amount you pay out of pocket before your insurance kicks in. For example, if your boat is valued at $1 million and you have a 5% deductible, you’ll pay $50,000 before your insurer covers the rest. This applies whether you have ACV or agreed value coverage.

Salvage and Wreck Removal

If your boat is damaged beyond repair, your insurer may remove it from the water and dispose of it. This is called salvage and wreck removal. With an agreed value clause, the insurer may keep the wreck as part of the claim settlement, but you’ll still receive the full agreed amount, minus your deductible.

General Average

General average is a maritime law principle that allows a shipowner to share the cost of a loss with other parties involved in a maritime emergency. For example, if your boat is damaged while helping another vessel in distress, you may be able to recover some of the costs through general average. An agreed value clause can help ensure you get the full agreed amount in such cases, rather than an uncertain ACV-based payout.

Scenarios: How Agreed Value Affects Real Claims

Scenario 1: Total Loss with Agreed Value

You own a 10-year-old yacht with an agreed value of $600,000. You have a 10% deductible. One day, a fire destroys your boat. Your insurer declares it a total loss and pays you the full agreed value of $600,000, minus your $60,000 deductible. You receive $540,000 in compensation.

Scenario 2: Partial Damage with Agreed Value

Your yacht is valued at $800,000 with an agreed value clause. You have a 5% deductible. During a storm, your boat’s engine is damaged and needs $100,000 in repairs. Your insurer pays the full $100,000, minus your $40,000 deductible. You pay $40,000 and your insurer covers the remaining $60,000.

Scenario 3: ACV vs. Agreed Value in a Claim

You own a $700,000 yacht. You have two policies: one with ACV coverage and one with agreed value. After a collision, your boat is totaled. The ACV policy pays $500,000 (its current market value), while the agreed value policy pays the full $700,000. The difference is $200,000 — that’s the value of the agreed value clause in this case.

Agreed Value and Navigation Limits

How Navigation Limits Affect Coverage

Your policy may limit where you can operate your boat. These are called navigation limits. If you take your boat outside these limits and it’s damaged, your claim may be denied. An agreed value clause doesn’t change this — it only affects the payout amount. If you violate navigation limits, you may not get any payout at all, regardless of the agreed value.

Example: Navigation Limits and Agreed Value

You have a $1 million yacht with an agreed value clause and a navigation limit that restricts you to U.S. coastal waters. You take your boat to the Caribbean and it’s damaged in a storm. Your insurer denies the claim because you violated the navigation limits. Even though your boat is valued at $1 million, you receive nothing because you were outside the policy’s terms.

Agreed Value and Lay-Up Warranty

What is a Lay-Up Warranty?

A lay-up warranty is a condition in your policy that requires you to properly secure your boat when it’s not in use. This includes things like draining the engine, covering the boat, and storing it in a safe location. If you don’t follow the lay-up warranty and your boat is damaged, your claim may be denied.

Agreed Value and Lay-Up Violations

Even if you have an agreed value clause, violating the lay-up warranty can void your coverage. For example, if you leave your boat in the water during a hurricane without securing it and it’s damaged, your insurer may deny the claim. The agreed value clause doesn’t protect you from policy violations — it only affects the payout amount if the claim is valid.

Choosing the Right Coverage

Factors to Consider

• Boat Value: If your boat is valuable or sentimental, agreed value is usually the better choice.
• Depreciation: If your boat depreciates quickly, agreed value can protect you from lower payouts.
• Policy Terms: Make sure you understand navigation limits, lay-up requirements, and other conditions that could affect your claim.
• Deductible: A higher deductible can lower your premium, but you’ll pay more out of pocket if you make a claim.

Agreed Value vs. ACV: A Comparison Table

Feature	Agreed Value	Actual Cash Value (ACV)
Definition	Fixed value set at the time of policy purchase	Current market value at time of loss
Payout	Agreed amount, minus deductible	Current value, minus deductible and depreciation
Useful For	High-value or sentimental boats	Boats with predictable depreciation
Cost	Higher premium	Lower premium

Final Takeaway

If you want predictable, full coverage for your yacht, choose an agreed value clause in your insurance policy. It locks in a specific payout amount, so you won’t be surprised by a lower-than-expected settlement. Just make sure you understand the other parts of your policy — like navigation limits and lay-up requirements — to avoid claim denials. Your boat is a big investment — protect it the right way.