Yacht Insurance: Know The Pitfalls!
Yacht insurance policies are different for every yacht owner. There is no "one size fits all" solution like with home or car insurance. So buying yacht insurance is quite a bit more daunting to research for coverage and price. While we all hope that insurance is something that we will never need to use, we expect the policy we choose to either fix the yacht or to be fairly compensated when needed. However, from our own experience and according to a recent BoatUS report, you may not be entitled to a payout with some common types of claims. In this article we will discuss the most common things to look out for when choosing your insurance.
Before the closing of your yacht purchase, your lender will require you to have insurance on your vessel. If you are buying a pre-owned yacht, the lender will generally require a survey to use to establish base coverage from the value and replacement value reported on the survey. As a very general rule, the annual premium for private yacht use coverage is 1.5% - 2% of the declared hull value. So, a $100,000 yacht will cost $1,500 to $2,000 per year to cover for Florida-Bahamas "private" use. However, this can vary from region to region. Yachts in charter will typically be covered under a "fleet" policy with preferential rates that differ from company to company.
Insurance for yachts has been getting harder to obtain because there are many more claims than before. And it's not just because of hurricanes. Actually, some of the most common types of claims are lightning strikes (Florida and Bahamas) and "sinkings at the dock". Because of all this, underwriters want to "personalize" the process much more than before and scrutinize every possible negative aspect of the application process.
Tips for Your Yacht Insurance Application Process
- Expound on your experience in "comparable boats". If you only have experience with 15ft Boston Whalers and you want to buy a 60ft sailing yacht to cruise to Bora Bora, then this will be difficult. It is preferable to get some experience on a sailing boat similar to what you plan to purchase. Take some lessons and bareboat charter being sure to log your hours. Do not mention any future ambitious plans to the insurance company until you are ready to actually leave for Bora Bora or other faroff destinations.
- Carefully declare your navigation area. The best thing to tell the insurance company is that the "navigation area" will be a relatively small area like Florida-Bahamas. (After all, you will if you are smart, get lessons to operate your new boat in relatively secure waters closer to home). Mention your experience in coastal waters or bareboat charters that have been further afield in more challenging sailing conditions. Unfortunately your experience on inland lakes does not count for much. Underwriters don't count experience in inland lakes unless that is where you will keep your boat. When the you want to move outside the initial navigation area, it will then be easier to acquire additional boat insurance with a small upcharge to add additional areas.
- Underwriters do not want to see an address from a non-coastal state where you are considered an "absentee-owner", even if you are living on the boat and are really NOT an absentee owner. The address on the application is what counts. So, if you are from Iowa, do not list that address. Get a mailing address in Florida or another coastal state. Most cruisers get mailing addresses from a mail service like sbimailservice.comwhere they get their mail sorted and forwarded to their next destination.
- Apply for insurance at least two weeks before you need it bound. Do not wait until the last minute. What used to take 45 minutes, now takes several days because underwriters are so, so very cautious.
- If you already have homeowner's or auto coverage with State Farm, Allstate, Progressive, or another major insurer, then it can be relatively inexpensive and easy to add the boat to the policy. But these policies are usually only valid in the U.S. and Bahamas.
- If you will sail to exotic locations then it becomes more complicated. Then you may have to go with a European company like Pantaenius, but typically they will not insure you if the yacht sails in US waters because of excessive liability risk in the U.S. The Seven Seas Cruising Association has some current recommendations for cruisers so visit their website for recommendations.
- Some companies will allow you to "over insure" your yacht. That could be good but if you have a "total loss" situation the insurance company may fight to get the boat repaired rather than pay out the full amount. That may not be what you want.
- Insurance rates will vary depending on use. If you plan on crossing the Atlantic in the distant future and/or possibly living on-board, don't tell your insurance company now, because your rates will reflect this additional coverage now. Wait until your plans are 100% confirmed. Often with a simple phone call, your insurer will make those changes for you just prior to your trip or lifestyle changes. You may owe an additional upcharge to cover the increased coverage. To save money, delete the old "coverage area" and replace it with a new coverage area.
- Some insurance companies offer discounts for moving the yacht outside of the "hurricane belt" during the official hurricane season (Jun1 to Nov1) so make your hurricane plans early. You could save quite a bit of money.
Things to Look Out for When Shopping for Yacht Insurance
Most yacht insurance policies are for an "agreed upon" value. That is, if there is a total loss, then you are paid the "agreed upon value" with no deductions. Beware of the tricky "actual cash value" policies wherein the underwriter can deduct substantially for depreciation and other reasons.
- Always buy an "All Risk" policy (vs. a "Named Peril" policy). Some policies exclude coverage in areas like the Bahamas, Florida, and Caribbean and will require you to take the yacht out of the hurricane belt during hurricane season for named and numbered storms and it can be very restrictive. However, companies like bluewaterins.com will cover your yacht with relatively low deductibles.
- Beware of "Exclusions" and "clauses" that allow the insurer to disallow payment.
- You will need "Consequential Damage" coverage that will cover losses that often start with a failed part. Unfortunately, many "sinkings" occur at the dock when some small part below the waterline fails like hoses, stuffing boxes, and sea strainers due to corrosion or wear and tear. This is considered a "lack of maintenance" issue, so you won't be paid for the hose or sea strainer and some policies won't cover the sunken yacht either as they exclude any "consequential" damage as a result of wear, tear and corrosion.
- Some policies only pay the cost of cleaning up a fuel spill if it occurs due to a "covered loss." So if your sunken boat wasn't covered because of a failed part, the resulting fuel spill won't be either. Sometimes fuel spill coverage is subtracted from other liability payments. A better policy separates out fuel-spill liability and provides coverage up to the maximum amount you can be held liable for under federal law, which currently is $854,000.
- In every hurricane, yachts drag and get blown off their moorings and need to be salvaged. Retrieving the yacht may require cranes, travel lifts, and other heavy equipment costing hundreds of dollars per foot of boat length. However, some policies subtract the money paid to salvage the boat from what you get paid to fix the boat, while others only offer salvage coverage up to 25% or 30% of the insured value. Look for separate salvage coverage up to the insured value of the boat in addition to any payments to fix the boat or replace equipment.
- If your boat gets destroyed completely by fire or some other reason, you end up with a "wreck." Most insured yacht owners assume their policy will cover the cost of cleaning up what's left, but some policies will give you a check for the insured value and only a specified percentage for wreck removal - 3% to 10% - nowhere near enough for the clean-up job. Better policies pay up to the liability limit, usually $100,000 or more.
There are other things to look out for like dinghy coverage, medical coverage, trip interruption, liability, and more. But generally, the above mentioned are the "tricky" parts and you should make sure that you understand each clause.
More Articles On Marine Insurance
Five Questions to Ask Your Boat's Insurance Agent
Latent Defects: A Little Understood Term Results in Boat Owners Not Taking Advantage of Insurance Coverage
Avoiding the Yacht Insurance Blues
What Marine Insurance Companies Don’t Want You To Know
TheSeven Seas Cruising Association has a lot of information on insurance, so be sure to check in with them.
Yacht Insurance Company Options
Blue Water Yacht Insurance
Markel Marine Insurance
A Few Insurance Terms To Know
Actual Cash Value: In the event of a total loss, the market value, determined by age and condition of the boat at the time of the loss. Boating industry reference materials (NADA Book, BUC Used Boat Guide, ABOS Marine black Book) are often used to determine market value.
Agreed Value: Determined and agreed upon by both owner and insurance underwriter at the time the policy is purchased.
Bind: To start coverage by accepting the quotation offered and meeting the special conditions and agreeing on a date to start coverage.
Binder: Immediate, temporary coverage or proof of insurance until a policy can be issued. Usually good for a 30 day term.
Constructive Total Loss: Cost of a boat's recovery and repair exceed the insured value.
Cruising Area: The geographic area or waterway where the boat is used as defined on the policy. If the boat is taken outside this cruising area, a cruising area extension is required to continue coverage.
Cruising Area Extension: Required when boat is taken outside the cruising area defined on the policy. Prior notification and approval is required and a fee will apply based on the length of the extension.
Damage Avoidance: Loss prevention, preparation that prevents or minimizes a loss.
Deductible: The portion of a claim to be paid out of pocket. The higher the deductible, the lower your insurance premium will be.
Depreciation: measured decrease in value of the boat, parts and equipment due to age and condition.
Hull ID: Series of letters and numbers uniquely identifying an individual boat.
Loss Payee: The person and or institution paid in a claim settlement, appearing on the boat’s title.
Named Insured: The person or person(s) whose name appears on the insurance policy.
Named Storm: Tropical storm or hurricane as designated by the National Oceanic & Atmospheric Administration (NOAA).
P & I (Protection & Indemnity): Coverage for third-party property damage, bodily injury, or death caused by you or your boat for which you’re found legally liable.
Partial Loss: Any claim incurred that has not resulted in the total loss of the boat.
Salvage: Successful rescue of insured boat from a perilous or dangerous situation.
Wreck Removal: Remove and dispose of the remains of an insured boat when legally required.