Keep the boat and do some shopping. The $7K is a lot closer to a new motor than the $9K is to a new boat! Should be able to get a good deal if you're patient. Good luck and tight lines!!
Do not surrender your boat. Either retain it and look for a new motor, or retain it and sell it without a motor to a third party person for significantly more than the 2k difference. If it were me I would keep it completely. Boats are extremely expensive right now so replacing it would be a huge cost.
EASY decision about the boat. Yeah, you want the boat so keep it. Take the 7 Grand and find a good motor or have it rebuilt properly. Even if you have to add a few bucks, you still will have the boat you want. An easy one to decide.
IMO: Take the $7k and use it toward the motor you want. It will be close, but I suspect you will come up a little short on a new motor. But new is always better since you know that the break in periods were done correctly and you didn’t buy someone else’s problems.
Keep the boat and bye the motor! Now, as you stated, I would speak with some marine stores and get a quote for both the motor and install price. You should be able to replace the motor as follows or at least close to this; 25 HP - 100 HP $4,000 to $12,000 give or take. Take the quotes you get and go back to your insurance company with results.
Bust Out Another Thousand (BOAT), motors are expensive as you know but, probably the best option, Good Luck, tight lines in Surfcity with the bummy stick, 26 inch blues
KEEP THE BOAT. ALL OF THE MANUFACTURERS RIGHT NOW ARE HAVING FALL CLOSEOUT SALES FOR EXAMPLE YOU CAN GET A 60HP HONDA JET MOTOR FOR $6,000. SHOP AROUND AND WHEEL AND DEAL!