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Marine Insurance
Boat
Insurance 101
Introduction
Insurance coverage is the same from
company to company, right? That may be true for many
kinds of insurance, but not for boat and yacht
insurance. Many types of insurance, like automobile
and homeowner insurance, are tightly regulated by
each state. As a result, the coverage provided from
company to company is very similar, if not
identical. While there are exceptions for smaller
boats in a handful of states, boat and yacht
insurance is not heavily regulated. This allows each
marine insurer to offer a much wider range of
coverage suited to that company’s level of
expertise, underwriting appetite, and type of
customer they wish to attract.
This
article will attempt to describe the basic coverages
that are available under boat and yacht insurance
policies, and the items that you should consider
before selecting a policy. We will also point out
the factors that the underwriter contemplates when
determining the rate to charge a customer. Hopefully
this "plain english" approach will help you make a
more informed decision when purchasing insurance for
your boat. Only you can determine the right
combination of coverage and price that suits your
needs.
Start with
the Basics
Let’s start by describing the two
basic sections of a typical boat or yacht insurance
policy: physical damage and liability. The physical
damage section covers accidental loss or damage to
the boat and its machinery. This not only covers the
hull and the engine(s), but also the sails and other
equipment on board that are required to operate the
boat. The liability section, sometimes referred to
as Protection & Indemnity, covers your legal
obligations to third parties. This legal liability
can arise from bodily injury or loss of life, or
damage to someone else’s property, as a result of
the ownership or operation of your boat. Liability
coverage also helps pay for your legal defense if
you are sued for something that may be covered under
your boat insurance policy.
Physical
Damage – What Losses are Covered?
Physical damage coverage will pay for
repairs to your boat that are necessary as a result
of damage caused by a wide range of perils. The best
policies provide "all risk" coverage, which means
that if the cause of loss is not specifically
excluded, it is covered. Common causes of loss that
are covered include: weather-related perils such as
wind, rain, hail, lightning and wave action; fire;
loss or damage caused by theft or vandalism; and
collisions with docks, submerged or floating objects
or other boats. Make sure that the policy you select
continues to cover your boat while it is stored on
land, or while you transport your boat over land by
trailer.
The boat owner has the responsibility to maintain
their boat, and so items that are damaged as a
result of normal wear and tear are not covered under
a boat or yacht policy. The number and type of
physical damage exclusions vary from company to
company, so take the time to compare to avoid
surprises later.
Loss
Settlement – Agreed Value vs. Actual Cash Value
When comparing physical damage
coverage, the most important difference that can be
found among boat or yacht insurance policies is
whether the coverage is based upon "agreed value" or
"actual cash value" (ACV) loss settlement. An agreed
value policy will pay the amount shown on the policy
if the boat is considered to be a total loss. Under
such a policy, damage resulting from a partial loss
is generally paid for on a replacement cost (new for
old) basis, less your deductible; that is, physical
depreciation will not be factored into determining
the value of the lost or damaged items. However,
some items that are subject to higher amounts of
normal wear and tear, such as canvas, sails,
trailers and some machinery, may be depreciated.
An
actual cash value policy provides less coverage than
an agreed value policy, but generally at a lower
cost. An actual cash value policy will pay only the
current market value of the vessel in the event of a
total loss, taking into account depreciation and the
condition of the boat at the time of the loss.
Payments made for partial losses are reduced based
upon physical depreciation of the lost or damaged
items, and the policy deductible is also applied.
While
an agreed value policy typically costs the boat
owner more, and provides broader coverage, an actual
cash value policy may suit the needs of an owner
looking for an economical alternative. (Both types
of polices are available from INAMAR.)
Personal
Property and Towing & Assistance
Two additional coverages found in
quality boat and yacht insurance policies are:
Personal Property coverage, and Towing & Assistance
coverage. Personal Property coverage covers such
items as clothing, personal effects, and sports and
fishing equipment belonging to you or your family
while those items are being loaded/unloaded and
while aboard your boat. Similar to physical damage
coverage, there are exclusions that vary from
company to company, so it pays to compare.
Towing
& Assistance coverage reimburses you for the costs
that you incur when you need emergency assistance
for your boat, and you and your boat are not in
immediate danger. Some examples of emergency
services that you may need which may be covered
include: towing to a place where repairs can be
made; delivery of fuel, oil or parts; or emergency
labor while underway. Check beforehand to confirm
that no deductible applies to this coverage.
Liability –
Other Important Coverages
The liability section of the most
comprehensive boat insurance policies provide many
coverages that are important to boat owners.
Coverage for the removal or disposal of the wreck of
your boat is important to have, especially if the
wreck is deemed to be a hazard to navigation. Boat
owners are also responsible for any containment and
clean-up expenses resulting from oil pollution or
contamination caused by their vessel. Be sure that
your boat or yacht insurance policy covers your
liability for those clean-up expenses, which could
add up to a considerable amount. If you ever intend
to borrow someone else’s boat, confirm that your
liability coverage extends to the other boat. This
is called "non-owned" boat liability coverage.
Finally, boat owners who employ paid crew members
should ensure that their policy covers their
liability to the crew under the Jones Act and
General Maritime Law.
A good
policy will also provide a separate coverage for
your liability under the Federal Longshoremen’s and
Harbor Workers’ Compensation Act. This will cover
your statutory liability to temporary shore-based
workers, such as a mechanic or marina employee, if
they become injured aboard your boat. Most boat and
yacht policies exclude coverage while your boat is
chartered to someone else, or used to carry
passengers for a fee. Under the right circumstances,
a good marine insurance company can extend your
coverage to include those situations. So ask first
to ensure that you will be properly protected.
Medical
Payment Coverage
Your policy should also include an
adequate limit of coverage for Medical Payments.
Medical Payment coverage will pay for first aid
treatment, ambulance, hospital and other costs that
result from someone being injured on your boat, even
if you are not legally responsible. It is important
to ascertain whether the coverage also applies while
someone is boarding or leaving the boat, and while
being towed behind your boat, such as while water
skiing. Check to make sure that injuries to you and
your family are also included in this coverage.
Coverage on a "per person" basis is better than on a
"per accident" basis.
Uninsured
Boater Coverage
Since boat liability insurance is not
mandatory, there are many boaters operating without
liability coverage. Uninsured Boater coverage is
designed to compensate you for injuries to persons
aboard your boat that are caused by an operator of
another boat who has no liability insurance. If you
are legally entitled to recover damages from the
other uninsured boater, or if you or your guests on
your boat are the victims of a hit-and-run boater
who cannot be identified, this coverage can help
ease the financial impact of those injuries.
Factors
Effecting the Cost of Insurance
The underwriter must consider many
factors when determining the rate (or premium) to
charge for a boat policy. The most common
determinants are: value, length, and age of boat;
type of boat (i.e., power, sail); type of engines;
mooring location; intended area of navigation;
previous boating experience and claim history of the
owner; and deductible amount. Sometimes the
underwriter will also consider the automobile
driving record of the owner(s), and whether they
have taken any safe boating courses.
There
are several ways that you can reduce the cost of
your boat insurance. The most common way is to
select the highest deductible amount that you are
comfortable with. In general, physical damage
deductibles start at around 1% of the insured value
of the boat, and can be increased to sometimes as
much as 5%. Each higher deductible amount reduces
your insurance premium. Think about how much you
could affordably pay out of pocket if a loss
occurred.
Many
yacht policies include a lay up period which is a
time that the yacht is normally laid up and out of
commission, such as during the winter months in
colder climates. The underwriter will normally allow
a discount for each month that the yacht is
decommissioned. You can usually reduce your premium
by requesting the longest possible lay up period
that would be reasonable for your part of the
country.
Intended area of navigation was previously mentioned
as a pricing factor. If you consistently navigate
close to your home port, you should inquire whether
a more limited navigational area on your policy can
save you money. In other words, don’t request
coverage for the entire east coast of the U.S. when
you only operate your boat in Maine.
The
condition of your boat was also mentioned as a
rating factor. If you own an older boat that is 26
feet or larger, the underwriter may request a recent
marine survey of your boat before quoting or
insuring it. The better the condition, the greater
the likelihood of being approved for insurance and
receiving a competitive quote. Anything that you can
do to update and repair critical systems prior to
the boat being inspected can improve the results of
the marine survey and leave a better impression with
the underwriter. Lastly, installing certain safety
devices on your boat can reduce the premium that you
will pay. Some marine insurers will give credits for
such safety items as: an automatic fire
extinguishing system in the engine compartment, a
fume or vapor detector in the bilge, or certain
anti-theft alarm or tracking devices.
Seek Out
Marine Insurance Experts
Now that you have a better
understanding of boat and yacht insurance policies,
you’ll be in a better position to ask the right
questions when buying marine insurance. It also pays
to work with a company who thoroughly understands
boat and yacht insurance. This is important not just
at the time that you apply for insurance, but also
in the unfortunate event that you have a claim.
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ANB Insurance, Aver-Neuwald-Berryessa Insurance, LLC
P.O. Box 1200 • 931 Mission St.• Santa Cruz,CA 95061
California Department of Insurance License Number: 0C47334
TEL: 831-423-4304 • 1-800-245-7398
FAX: 831-423-0120
Email:
anbins@anbins.com |
