For many owners of boats there is a certain feeling of joy as they enjoy sailing the high seas, feeling the wind on their faces, in the company of friends and family members. They have high net worth insurance because they want to protect this valuable asset, and they want the comfort of knowing that, if anything goes wrong, they will be properly compensated for their loss. One potential stumbling block when purchasing insurance is the "valuation clause." In the event of a complete loss, many boaters are unaware that insurers likely will subtract the depreciation of the boat based on its age and condition.

Coverage amount may differ from perceived value

The insurance company may only issue a check for the value of the boat based on the current market value listed in the "BUC Book" (the marine version of the Blue Book for cars). Subsequently, many boat owners can end up paying too much on their policy as the boat depreciates over the years. Unfortunately, and often too late, they discover that they will not receive the replacement value they expect if their boat is stolen, sinks, or catches fire in a total loss.

For example, anyone having paid $100K to purchase a boat five years ago should realize that the insurance company is not going to give him or here the full amount in return if the boat sinks, is stolen or is otherwise totaled. The insurer will use the age and condition to determine the current value, and that"s the amount that the insured may receive in a check, less the policy deductible.

Avoid overpaying on coverage for older boats

Therefore, there are a lot of people who overpay on their insurance policies, or think they will receive full replacement value if something happens to their boat. A wise course of action would be to re-evaluate the existing policy every year to make sure the amount of insurance being paid properly coincides with the current market value of the vessel.

On a partial loss, such as a theft of electronics, most good policies provide replacement cost without depreciation. But be careful, as not all policies do so. Read the fine print, or simply ask. Anyone owning a classic boat, a restored boat, or a boat with sentimental value that would take a lot of money to replace, may need an "agreed-value" policy. With this type of policy, the owner and the insurance company agree on the value of the boat and what it would cost to replace in the case of a total loss.