Part 1: Understanding Marine Insurance
by Ken Levitt
What Will They Pay
Many policies default to conditions similar to your car policy regarding how you get paid in the event of a loss. This means that in the event of a total loss, the insurance company looks up your (USED) boat and year of manufacture in some reference guide, get a value, subtract off your deductible, and send you a check. Depending on your individual circumstances, the value they use may be close to the boat's real market value, or many thousands of dollars off. If it is way off, you can bet that it will not be in your favor. In any case, it is EXTREMELY unlikely that you will be able to purchase a similar used boat and outfit it completely the way yours was, for anything close to what the insurance company gives you. Some companies may start with an initial value, but lower (depreciate) it every year, even though a well-maintained boat is not likely to loose its value as fast as the insurance company will be depreciating it.
There are, however, two kinds of policy modifications that will leave you in much better financial shape following a loss. These (as expected) come at a higher premium cost.
Stated Value Policy
In a "stated value policy", you and your insurer agree on the value of the boat. This often involves having a marine survey (at your expense) to confirm the condition and value of the boat. (Note that some insurers require a new marine survey every two or three years. If they expect you to pay for these surveys, you should factor the cost into your premium calculations.) In the event of a total loss, you will be paid the agreed value minus any deductible.
"Waver of Depreciation" or "Replacement Value"
You might think that with a Stated Value policy, you would be completely protected. You would be wrong. "Stated Value" only comes into play when the boat is stolen, is a total loss, or has hull/fiberglass damage. Things like masts, chart plotters, radios, sales, rigging, and winches are covered differently. Any part that might be considered to have a useful life will be depreciated. So an insurance company might decide that your 5 year old chart plotter with a current replacement cost of $3000 was only worth $500 at the time of the loss, or that your 15 year old mast has only 50% of its useful life left. The only grounds you might have to fight this valuation would be to show that the same item of the same age and condition is selling on the used market for more than the insurance company offered you. Even then, they may say no, and there's not much you can do.
The solution, though costly, is to purchase extra coverage called "Waver of Depreciation" or "Replacement Value". With this in place, you are covered for the full price of a brand new replacement part, less your deductible.
Different insurance companies (and maybe individual adjusters) may have different ideas about which parts are depreciated and which are not.
Liability pays someone else when you (or your boat) cause injury to a person or property. You may think that you are such a careful boater that you will not need this coverage. Even if you are correct that you could never be at fault in an accident, it is easy for someone to claim that you were. If you have enough liability insurance, the insurance company and their lawyers will deal with it. Otherwise, you could easily spend $20,000 or $30,000 in legal fees to prove you were not at fault when someone is injured or killed.
Some marinas (especially in Florida) will not rent you a slip or a mooring unless you have at least $300,000 in liability insurance. You could be refused service if you show up at such a marina late in the afternoon with a reservation but not enough insurance. My marina in Mattapoisett, MA will not lease me a mooring without me having $1,000,000 in liability insurance (see unbrella policy in next paragraph).
It is smart money to purchase a $1,000,000 (or more) liability umbrella policy on your home owner’s insurance policy; make sure that it dovetails with your boat insurance liability coverage. An Umbrella policy provides additional liability coverage after the limits of your auto, boat, or house policy are exhausted. Because of this, your unbrella policy will require you to maintain a minimum level of liability on all your other policies (usually $300,000). Make sure your boat policy is listed on your unberlla policy as an underlying coverage.
If you have no other insurance at all, it is wise to have liability coverage and a sizable umbrella to protect you from claims; if someone injures themselves on your boat, you may be liable regardless of the cause.
Liability caused by the trailer on the road will be covered under your automobile policy. Insuring against damage to the trailer may be covered in several different ways, or you may decide you don't require this coverage. Some boat policies automatically cover the trailer in the same way they cover any other piece of boat equipment. Other boat insurers only cover the trailer if it is listed separately on the policy with its own value. You may also have the option of adding the trailer to your auto policy.
Warning! Many insurance companies will deny coverage if your trailer is in an accident and the trailer is over its registered weight limit, or the towing vehicle is towing a combined weight (trailer plus loaded boat) that exceeds the vehicle manufacturer's recommended towing weight limit.
Tenders and Life Rafts
Typically, vessels used exclusively as life rafts are covered under the basic boat policy, but tenders (dinghies) and their motors are only covered if listed separately on the policy. If listed, they will often have a lower deductible than the primary boat.
If you break down on the road while towing your trailer and need to be towed, AAA and other auto plans will tow your car or truck, but not your trailer. You might be forced to leave your boat by the side of the road. Some boat insurance plans have trailer towing; others do not. If you are a member of BoatUS (highly recommended), you should spend the extra $10 per year to cover trailer towing. They can dispatch a tow truck that is prepared to fix or tow your trailer as well as your car.
If you are stranded at sea and ask for assistance, the service you get could be considered towing or it might be considered “Salvage” depending on the written agreement (or lack there of) you have with the service provider. If the assistance is “Salvage”, it could cost as much as half of your boat’s value and may not be covered by your boat insurance. If you get assistance through BoatUS, they will send an approved tow boat that isn't likely to rip you off. However, it is still essential to completely read ALL of the paperwork before signing anything, and make sure the paperwork specifies a fixed price or an hourly rate.
For an in-depth look at salvage and towing, check out these articles: http://www.boatus.com/towing/guide/salvage/towsal.asp http://www.foremostboaters.com/insurance/towing.htm http://www.vesselassist.com/SWhite_tow_salv.html
"No fault" medical payment coverage comes included in the basic policy at no additional charge. There is no need to increase the coverage beyond the minimum if you and your family have health coverage; if you increase your coverage, you will be paying for the same coverage twice. Guests would be covered first by the base medical coverage, second by their own health insurance, and third by your liability coverage.
These are items that are not permanently attached to the boat and are not required in the operation of the boat. Examples include camera, clothing, iPod, binoculars, etc. You can expect this coverage to have its own separate deductible and maximum coverage. Some insurers allow you to add higher limits for an increased premium.
Personal property may already be covered under your homeowners policy, but your deductible and possible discount for having no recent claims would likely make it impractical to use your home policy for such a claim.
BoatUS (and possibly other insurers) will pay some of the cost to have your boat hauled out of the water when a severe storm is approaching. It is best to know in advance what you are covered for and to have an action plan to follow when needed.
Certain actions or events cannot take place unless insurance is already in place. For example, you may not be able to register a car or get a boat loan without first showing proof of insurance. Because of this immediate need for insurance, the industry has developed the concept of a binder. A binder can be issued by either an insurance company or one of their authorized agents.
A binder establishes immediate insurance coverage for a short time, allowing other actions to proceed while the insurance company has time to go over your application and you have time to examine the full policy. A binder may last for just a few days or as long as 30 days.
It is critical that you have a written copy of the binder or proof of insurance document (see Part 4). At a minimum, it should state the vehicle(s) covered, the amount of liability coverage, and the amount of property coverage (if stated value policy). In most cases, it should be sufficient to get a binder by FAX or email, but I would be hesitant to go on a long trip or outside of the country without an actual policy in hand.
Automobile Driving Record & Claims History
All insurers will want to know about any automobile moving violations in the past 3 years. A single speeding ticket will not likely make any difference, but a DUI, reckless driving, or numerous violations will certainly get their attention. If you have a bad record, it's best to stick with your present company until these things time out.
You will also be asked about boat insurance claims in the past 5 years and if you have had a boat insurance policy canceled for any reason other than non-payment.
Most of the application forms ask if you have passed any boating safety courses. Some will accept on-line courses; others will only accept Coast Guard or Power Squadron. It is not clear to me how this effects premiums. It may matter more for boaters with less boating experience.
US Sailing has some good online courses. See: http://www.sailingcourse.com
Commercial Use & CharteringA standard policy will not provide coverage if the boat is being used for any commercial or business use, is carrying passengers for hire, or is chartered or leased to another person.
BoatUS allows occasional chartering (up to 5 weeks per year) if you pay extra for each charter.
It is very difficult to find any carrier that will insure a multihull for charter.
None of the policies I have seen cover a boat used as a primary residence. I'm sure there must be insurance for this situation, but a standard boat policy is not where to find it.