Marine Insurance for the Cruising Sailboat
Capt. Wayne Canning, AMS
One of the more confusing issues a sailor must face is that of marine insurance. Unlike car or home owners insurance, marine insurance is not regulated by laws that govern rates and coverage. To make matters worse many agents selling marine insurance do not really understand the intricacies and nuances of marine insurance. This is particularly true with agents that sell home and auto insurance. In order to get the best coverage at the best price a boat owner really needs to understand their policy, what it covers and more importantly what it does not cover.
What you think your boat and its equipment are worth and what the insurance company thinks it is worth may be two different things. Understanding this is important to understanding your coverage. Letís look at some of the terminology.
Book Value: Is a value based on what standard sources such as BUC and NADA say a boat of equal age and condition is worth. This works well on newer boats but can be way off for older boats and boats with major upgrades after purchase.
Stated, or Agreed Value: You and your insurance company agree to what your boat is worth. Usually if the boat is more than 8-10 years old the insurance company requires a survey to establish this value. Boats less than 8-10 years old the value is often be based on the purchase price less depreciation. If you have a newer boat with major upgrades such as an electronics package or new suit of sails, it is wise to make sure you keep records to prove you have had the upgrades.
Actual Cash or Replacement Value: Usually applied to equipment onboard, this is based on what something is worth if it was to be sold today. Normally this will be used to value things like electronics, sails and engines. That 10 year old chart plotter may only be worth $250 on the open market even though you paid $3000 for it! Your replacement cost may be $3000 but the insurance will only pay $250. Once again keep records of recent upgrades to help prove values.
Waiver of Depreciation or Replacement Cost: Some policies (usually for additional cost) will allow full replacement costs for equipment. This really is the best way to go if you can get it. Ask your agent, it may cost a bit more but could well be worth it in the long run.
Hybrid Policies: Hybrid policies are the most common and will often pay the Agreed Value for a hull or total loss but only pay Actual Cash Value for partial or equipment damage. The insurance company may use a depreciation schedule for items such as engines, electronics, and even your mast and rig. Once again it is important to keep records of any upgrades.
What is covered in your policy and what is not? This can a bit tricky so it is important to understand. Marine insurance is considered "All inclusive" meaning it covers everything. That said almost all policies will be filled with exclusions or what they do not cover. Often these exclusions are on separate sheets and not in the main body of your policy.
Exclusions often include things like: Acts of war, Vessel seizure, Wear and Tear, Manufacture defects, Terrorism and even Nuclear contamination! Some policies will exclude named or numbered wind storms as well. Additionally you are likely to be restricted to limited and specific cruising grounds. It is important that that you read and understand your policy, you do not want to find out after a loss that you were not covered. If in doubt ask your agent, he or she should be able to clearly explain what is, and is not covered, but in the end it is up to the owner to know their policy. Like they say "Read the fine print." While on this subject be sure you understand you're deductible as well. The deductible can vary depending on the type of loss. For example many policies will have higher deductibles for named storm damage, lightning damage, and rig or sail damage.
Protection and Indemnity or Liability.
If you have no other insurance on your boat you should at least have liability or P & I insurance. In fact most marinas require proof of liability insurance before they will give you a slip or do work on your boat. Liability covers you for damage or injury caused by you or your boat. Marinas require this so that if someone trips over your dock line they will be protected by your insurance not theirs. This also protects you should a guest aboard be injured even though that injury is no fault of yours. Your liability should cover wreck removal and oil spill cleanup as well. This will cover expenses should your boat sink and be legally required to be removed, often the case in channels, marinas and public beaches. Oil spill cleanup can be very expensive as well and often like wreck removal you may not have any control over who does the cleanup and the associated costs. If you own a home, your home owner's policy is likely to cover some of your personal liability. This is part of your umbrella policy. But if you rent a home or apartment or live aboard you need to make sure you are covered even while away from your boat. Check with your home owner's agent to see just what is covered in regards to your boat before deciding how much you need for your boat owners policy.
Finally let's look at insurance for the live aboard sailor and the long range cruiser. If you are a live aboard sailor you may already know getting insurance for you and you boat is not easy. Most companies will not cover live aboard boaters. Different companies will state different reasons for this but it really boils down to a higher a liability risk for the insurance companies. Additionally the value of your personal belongings will be higher and the live aboard creates more wear and tear on a boat resulting in a greater chance of loss from equipment failure. Although it may be harder to get, it is not impossible and in recent years some insurance companies are finding this a profitable niche market. Once again a good knowledgeable marine agent should be able to get you the coverage you need at a reasonable price. Also keep in mind if you live aboard for more than a few weeks a year you need to let your insurance company know. Insurance companies consider this "material misrepresentation" and could result in your claim being denied.
Insurance for the long range cruiser is likewise not as easy to get but as with live aboard insurance there are companies that will work with you. Once again in the last 10 years or so more companies are writing policies tailored to the cruising sailor as well as the live aboard. Many traditional companies will write riders that will cover specific cruising areas such as the Bahamas. Once again a knowledgeable agent can help you. If you plan on more extended cruising there are some special policies available to cover you as far as you want to go. Keep in mind these riders and special policies with have restrictions as well. Most require a minimum crew of -3-4 experienced sailors for example, and many will exclude certain cruising areas or countries such as Cuba, Haiti, and a good part of the Middle East. Also the long range cruiser must be aware of certain requirements of the host country they are visiting. Mexico for example requires all visiting yachts have liability insurance, the catch being this insurance must be written by a Mexican company. Failure to have the right insurance can result in seizure of the vessel.
Another thing sailors must consider when cruising outside the US is health insurance. Many US health insurance companies do not provide coverage once off US soil. Even if you are covered you may want to add additional coverage for things like emergency air evacuation and emergency dental. You do not want to wait for an emergency to find out you are not covered. Travel and Adventure medical policies can be purchased for short periods such as a week or two, or for as long as several years.
Finally whatever you do make sure you get it in writing! New insurance, riders, and policy changes should always be gotten in writing with you as the policy holder named. Never assume you are covered until you have a piece of paper in your hand.
Every boat owner needs to take the time to read and understand their insurance policy. A good agent will help guild you through the maze of legal wording and subtle nuances of marine insurance. This becomes even more important if you are planning an extended voyage or are living aboard. Purchasing marine insurance can be a bit like navigating a difficult channel. Good knowledge of your course and the hazards is important. Having a good agent who knows their stuff can be like having a good pilot to guide you.
Capt. Wayne Canning lives on his Irwin 40 VAYU, in Wilmington NC. A marine professional for more than 35 years he is now a full time Marine Surveyor, delivery skipper, and consultant/project manager on major repairs. Capt. Wayne also runs web sites for other marine professionals, and those restoring project boats. Visit www.4ABetterBoat.com for more information.