One line decides what a total loss pays

The two clauses, in plain words

Agreed value

You and the insurer fix the vessel's value up front and write it on the policy. A covered total loss pays that figure, without a depreciation argument. The figure normally has to be supported by evidence — a survey valuation, a bill of sale — and is usually reviewed at renewal.

Actual cash value (ACV)

A covered total loss pays the market value of the vessel at the time of loss, less depreciation, assessed after the event. The policy limit is a ceiling, not a promise: you can be insured for a figure and settled at less than it.

Constructive total loss

The vessel is recoverable but repairing it would cost more than the threshold the policy defines. How that threshold is calculated, and what happens to salvage, is policy wording and differs between forms.

Depreciation schedule

The table a carrier applies to specific components on a partial loss — commonly canvas, sails, outboards, electronics and machinery. It can apply even under an agreed-value hull clause, which surprises people.

What the difference looks like in numbers

The figures below are hypothetical and the arithmetic is the whole point — substitute your own insured value and your own view of what the boat would fetch today.

Row one is why the difference is easy to miss when nothing has happened. Row three is why it matters. A deductible is subtracted in both cases, and on a marine policy the deductible is often a percentage of the insured hull value rather than a flat sum — which means it moves whenever the insured figure does.

Why it turns up in a renewal conversation

Three ways, all of them worth checking rather than assuming:

• The basis changed at renewal. Older hulls are the common case — a carrier that wrote agreed value at purchase may only offer actual cash value once the vessel passes an age threshold, and the change can land without a large premium movement to draw attention to it.
• The agreed figure was revised down. Agreed value is normally revisited each year, and a lower figure means a lower premium and a lower settlement. That may be right, but it should be a decision you made.
• A cheaper quote is quietly ACV. This is the most expensive comparison mistake in marine insurance, and it is invisible if you compare on premium and hull limit alone.

Check it yourselfSettlement wording, constructive-total-loss thresholds and depreciation schedules vary by carrier and by form. Ask for the form number and read the clause itself — the declarations page is a summary of the contract, not the contract.

When ACV is a reasonable choice

On an older vessel whose market value you would accept without argument, actual cash value can be a sensible way to carry a lower premium, and pretending otherwise would be selling you something. The test is simple: if the boat were gone tomorrow and the carrier offered you what you privately think it is worth, would that be the end of the matter? If yes, ACV is a defensible trade. If no, you are carrying a risk you have not priced.

What to ask, in writing

• Is the hull written on an agreed value or actual cash value basis? Ask for it in writing, not on a call.
• If agreed value: what evidence supports the figure, and when is it next reviewed?
• Does a depreciation schedule apply to any component on a partial loss, and which ones?
• How is a constructive total loss defined on this form, and what happens to salvage?
• Is the deductible a flat figure or a percentage of the insured value? Ask for it in dollars.
• If my insured figure changes at renewal, what else moves with it?

Where this sits

Settlement basis is the first of the four clauses that separate two marine policies with the same premium. The others — the survey requirement, navigational limits and storm plans and lay-up periods — are each worth the same ten minutes. The overview is why a marine renewal goes up.

Common questions