Virtually
all boaters have emergency gear we hope we will never use. We carry and
maintain flares, fire extinguishers, first aid kits and throwable flotation
devices. If venturing offshore, we often add a well-stocked life raft
and an EPIRB. In addition to periodically inspecting emergency items,
we routinely monitor our bilge pumps, lights, horns, seacocks and other
equipment essential for the continuing safe operation of a boat.
One
critical item that might be overlooked is marine insurance. While it's
a certainty that most boat owners have some type of insurance in place,
it can become easy enough to deal with insurance by simply paying the
premium every year and filing away the renewal certificate. Like other
gear that will be important in an emergency, the vessel insurance policy
should be occasionally reviewed, inspected and updated if required. Some
boaters "accidentally" discover at the moment the policy is
actually needed that the coverage they assumed and presumed the contract
included is non-existent, or subject to stressful negotiations.
Recreational marine insurance can be divided
into two major categories: "Small-Boat Coverage" or an agreed-value
"Yacht Policy." Many non-marine insurance companies place "small-craft
coverage" on larger yachts, and that can lead to problems.
Small-Boat Coverage
Smaller boats of moderate value often typically have ordinary "boat
insurance" or small-craft policy. Small-boat policies are often
sold by carriers actually specializing in automobile or homeowner's
insurance, and while some carriers won't write small-craft coverage
on vessels over 26-30 feet, others will. Many boaters have a small-craft
policy by default; the insurance issue arose during the vessel purchasing
process and the new buyer concluded, "I'll just give Joe Blow,
my car insurance agent, a call. I think I saw a notice in one of my
bills stating that he writes boat insurance, too. Heck, I might even
qualify for a volume discount!"
Like
other gear that will be important in an emergency,
the vessel insurance policy should be occasionally reviewed, inspected
and updated if required.
Small-craft policies are considered "named peril" coverage.
With certain exceptions (like deliberate abuse or an act of war), a
vessel is generally insured against any specified loss such as sinking,
fire, collision or theft. Liability coverage (often referred to as "protection
and indemnity" or P&I) included in the policy will protect
a policyholder up to a predetermined, stated, financial obligation if
a boater's actions injure another person or cause property damage. Liability
coverage is routinely written for 100,000, 300,000 or 500,000 limits,
but greater and lesser amounts may be available by special arrangement.
Coverage for medical bills not directly associated with a liability
claim may be limited to the boat owner and his or her immediate family.
Dinghies are customarily considered part of the mother vessel's equipment
list, and some coverage is typically allowed for personal items.
A small-craft policy usually only covers
the actual cash value (ACV) of a vessel immediately before the loss
occurred. One disadvantage of a small-boat insurance policy is the lack
of certainty about the amount that will be paid should a total loss
occur. The insuring company will attempt to assign a value to the boat
and offer that amount as a settlement. Boaters having been through the
ACV settlement process often compare it to settling a claim for an auto
wreck.
Adjusters have been known to rely on
national blue book values when paying a claim under a small-craft policy,
and in many cases the pricing guides are written to a standard "depreciation
from original list" formula. Most boats do not depreciate as rapidly
as an automobile, and some of the more desirable brands depreciate more
slowly than others.
ACV may not even be enough to pay off
a marine mortgage, and may not be closely associated with the actual
cost to replace a specific boat in the Pacific NW market.
The
fundamental difference between a yacht policy and ordinary boat insurance
concerns the manner in which claims are settled.
Partial losses or repairs may be subject to depreciation, as well. Suppose,
for example, that an unlucky or inattentive skipper backed down on some
rocks. We'll assume a hypothetical repair bill for two shafts, two props
and a swim step totaling $12,000. On a vessel covered by a small-craft
insurance policy, adjusters are frequently allowed to depreciate the
damages at a rate consistent with the age the boat. In a case where
the insured vessel was considered to be 50 percent depreciated, the
$12,000 repair bill could conceivably be settled for $6,000, minus the
policyholder's deductible.
Small-craft policies may be a good choice
for boat owners who prioritize slightly lower annual premiums in exchange
for minimal coverage, or who insure infrequently used trailerable boats
of modest value.
Yacht Policy
The typical yacht policy provides "all
risk" coverage, indemnifying a boater against fire, theft, collision
or sinking. Liability protection will be included, of course, and the
coverage for medical payments, miscellaneous personal gear and dinghies
are typically broader than found in a small-craft contract.
The fundamental difference between a
yacht policy and ordinary boat insurance concerns the manner in which
claims are settled. In the event of a total loss, a yacht policy functions
more like life insurance than auto insurance and pays a previously agreed
value to the insured.
The insured ("agreed") value
is customarily established by the purchase price of the vessel. Boat
owners switching insurance companies may be required to obtain a survey.
Yacht insurance companies have the right to require periodic additional
surveys as a condition for policy renewal (usually at four-five year
intervals). When a boat owner makes certain permanent improvements or
upgrades to a vessel, it is possible to request an increase in the agreed
value of the policy.
P&I coverage will customarily be
more comprehensive under a yacht policy. Medical bills for guests and
hired workers, not immediate family members, are more likely to be covered.
Some policies provide protection against environmental cleanup costs
and legal fees if fuel or engine oil should accidentally get into the
water.
Partial losses are not customarily depreciated
when settling a claim under a yacht policy. The hapless, hypothetical
skipper with the $12,000 repair bill we considered in a previous paragraph
could expect a yacht policy to cover the replacement of most damaged
components without regard to age or depreciation. Canvas, sails, batteries,
upholstery, curtains, outboard motors and outdrives may be depreciated,
even in a yacht policy. More yacht policies now apply some depreciation
to main engines more than eleven years old. The policy's deductible
would, of course, apply.
Many boaters are less than eager to consider
their pleasure vessel a "yacht," but a yacht policy may still
be the correct choice for owners of moderate size and larger craft who
are seeking the broadest available coverage. Even if the term "yacht"
seems slightly pretentious when applied to the majority of NW boats,
we can be reasonably sure that owners of ordinary boats will be afforded
the opportunity to pay yachtsman prices for restoration and repairs.
Additional Considerations
While reviewing a policy's provisions,
boat owners may be well advised to double check some specific items.
Some boaters may realize that their policy contains optional coverage
for which they have no use, and in that case there may be some annual
premium savings available. Other boaters might be surprised to discover
that a coverage they assumed was included is not there, after all. Any
local marine insurance specialist should be willing to help a policyholder
evaluate their specific coverage.
Among the many items to review:
-Does the policy contain a "private pleasure" warranty? If
so, the policy may not cover the vessel if it is placed in charter service.
-Does the policy include liability insurance and medical payments for
hired workers and guests?
-Will the policy provide liability coverage when the policyholder is
operating a non-owned or chartered boat?
-What coverage is provided should a vessel need to be transported on
land?
-What level of coverage is provided for personal effects, dinghies and
trailers?
-Does the policy restrict racing or water-skiing?
-What are the navigation boundaries associated with the policy? Is a
"rider" available for an offshore voyage or a cruise to Alaska?
Controlling Costs
Many factors are considered when a marine
insurance premium is calculated. The age of the vessel, the experience
and training of the operator, the choice of gasoline or diesel engine,
the navigational area, and the amount of the deductible all factor into
the rate quoted. Electing a higher deductible, installing a fire suppression
system, and completing courses in navigation and safe boating practices
are all choices a boater can make that will help control premium costs.
It will also be important to keep the insurance broker informed of major
changes and improvements to a vessel. Some major modifications may increase
the value of a vessel and the agreed value may need to be adjusted accordingly.
Perhaps the best advice for controlling
premium costs is to operate safely and carefully, thereby becoming a
"profitable" risk for an insurance carrier. There are some
excellent arguments for finding an insurance broker with whom you enjoy
doing business with and can become a long-term client to. Hopping between
insurance companies in an effort to save a few dollars on premium costs
may be less cost-effective in the end than capitalizing on a mutually
beneficial and continuing business relationship. 
Neal
Booth of Boat Insurance Agency and Chuck Landback of Anchor Marine Underwriters
graciously assisted in the preparation of this article.
