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 marine 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 varies from region to region. Yachts in charter will typically be covered under a “fleet” policy with preferential rates that differ for each charter management 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
- Your Sailing Resume. 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 securing affordable yacht insurance…or at all…will be difficult. Get some experience on a sailing boat similar to what you plan to purchase. Take some lessons, sail with friends’ boats, and and book bareboat charter being sure to log your hours. The very best way to provide this information is to keep a sailing resume up to date so that when yacht insurance renewal time rolls around, you can make a quick update with the latest new nautical miles or boat experience and hand it over to your broker to arm him or her with the information that enables them to go to bat for you.
- Detailed Description of Current State of Your Vessel. Having this information ready to hand over to your yacht insurance broker is an often-overlooked source of information that improves the accuracy of your coverage and if well-maintained with safety in mind, reduces rates. Much like your sailing resume, create a document or collection of documents and images that describes your boat in detail, calling out all safety features and any renovations or upgrades with dates. Include recent images as proof of these features. Remember, that yacht insurance buying is a very personal experience and the underwriter is looking for ways to assure risk of loss is the lowest possible. The lower the risk, the lower your rates.
- Declaring Your Navigation Area. 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 sailing 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 than the navigation area you are declaring. 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.
- Mention Only Current Sailing Plans. Insurance rates vary depending on use and navigation area. If you plan on crossing the Atlantic in the distant future (outside of the policy period you are researching) or if you are considering but not yet committed to living on-board, don’t tell your insurance company now. You want your rates to reflect your current plans, not something you might do. Wait until your plans are 100% confirmed. You will likely owe an additional upcharge to cover the increased navigation area coverage. To save money, delete the old navigation area coverage and replace it with a new coverage area.
- Changing Your Navigation Area/Sailing Plans. When the you are ready to move outside the initial navigation area, note, that changing your navigational area during your policy period is not as affordable as it once was. It is best to plan ahead when you are renewing as that gives you the most flexibility in choosing the yacht insurance company that offers the best rates and coverage in that navigation area. If you lock in to a company that does not support South Pacific sailing with affordable rates, or at all, you will cause yourself much grief. If you have tentative plans to go outside your navigation area in the upcoming year, ask your broker during your insurance selection process about these additional areas without declaring you are going there. Do not put this on any application, but rather have an informal conversation. Even better, talk with your fellow cruisers and yacht owners! Knowing about whether your insurance company covers a contemplated use or area can give you an indication of upcharge costs and potential for coverage of that area.
- When You Want to Sail Further Afield. Sailing remote, exotic locations becomes more complicated and you will find the yacht insurance companies that cover the US/Bahamas/Caribbean will not work for your long-distance sailing plans. Look for a yacht insurance company with international coverage for the region of your sailing plans and note that those companies typically they will not insure you when sailing in US waters because of excessive liability risk in the U.S. Resources to search for coverage:
- Seven Seas Cruising Association yacht insurance recommendations for cruisers
- Our yacht insurance recommendations.
- Relocate During Hurricane Season. Most boat insurance companies offer discounts for moving the yacht outside of the “hurricane belt” during the official hurricane season (June 1 to November 1), so make your hurricane plans for your boat early. You could save quite a bit of money. Just be sure you execute your plans and actually move the boat.
- Try to Work with Insurance Companies You Know. If you already have homeowner’s or auto coverage with State Farm, Allstate, Progressive, or another major insurer, explore the possibility of adding the boat to the policy. You may be pleasantly surprised, but these policies are usually only valid in the U.S. and Bahamas.
- Covering Personal Belongings. Cover your personal belongings with a separate policy, not under your yacht insurance. This is another good opportunity to reach out to your existing home/auto insurer to see what type of renter’s insurance they offer to cover your personal items aboard your vessel.
- Your Address Matters. Underwriters consider an address from a non-coastal state a red flag and considered you 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 land-locked 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 where they get their mail sorted and forwarded to their next destination.
- Early Bird Gets the Policy at the Best Rates. 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. Note that this does NOT include your research time which probably takes at least a month so plan ahead so you have plenty of time to get quotes from several insurance brokers.
- Research, research, research. Get quotes from several yacht insurance brokers including at least one that specializes in your type of vessel and/or navigation area. If you already have a quote from an insurance company, let the broker know so time will not be wasted getting you a duplicate quote
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.
MORE ARTICLES ON MARINE INSURANCE
- Latent Defects: A Little Understood Term Results in Boat Owners Not Taking Advantage of Insurance Coverage
- The Seven Seas Cruising Association has a lot of information on insurance, so be sure to check in with them.
Yacht Insurance Shopping Considerations
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. See our interview with yacht insurance company, Hanham Insurance Agency, in which Hugo Hanham-Gross explains ACV policies’ risks in more detail.
- 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 our recommended marine insurance companies 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.
2 thoughts on “Yacht Insurance: Know The Pitfalls!”
Outstanding suggestions.
I have heard:
It is best to hire a Insurance Agent to “shop” multiple Companies
Most Insurance Companies want full payment at the time of issuance.
Be well & Thank You.
Thank you! Yes, it is advisable to use an agent like Hugo Hanhamm Gross. See his details in our favorite links / partners. Some insurance companies will allow partial payments and we have had a good experience with Hugo. He almost always can pull something off for us. However it depends on where you will cruise, your experience as a sailor among other things.