Have you ever stopped to think about what your yacht insurance policy actually covers, or for that matter, what it does not cover? Don't wait until you have a loss to discover that your policy isn't exactly what you thought it was or should be. Here are a few suggestions to help you find the proper insurance contract and what some of the fine print truly means.
To begin with, there are two types of yacht insurance contracts in the marketplace. The first is called Actual Cash Value (ACV). This policy type provides loss settlement by deducting for depreciation. The second policy type is called Agreed Value. This policy provides loss settlement on a new for old basis without deducting for depreciation. The "Agreed Value" portion of the coverage is determined at policy inception between you and the insurance company, by selecting the value of the vessel. In the event of a total loss, you will receive this agreed upon amount, with no deduction for depreciation.
For the most part, ACV policies are less expensive than their Agreed Value counterparts. The reason for this is that they simply cover less. Some insurance companies offering ACV contracts include: State Farm, Allstate, Nationwide and Prudential. Some companies offering Agreed Value contracts include: Travelers, Zurich, Cigna and Royal. Remember, the old adage that you get what you pay for, is very apropos in yacht insurance. The right policy for you is a matter of choice, and, to a certain degree, risk tolerance.
It is important to note that there are some coverage items that are always depreciated regardless of what policy type you ave. The most commonly depreciated items include batteries, canvas. outboard motors, sails, dinghie and personal property. If you do suffer a loss with any one of these items, the settlement will be derived by establishing the replacement cost of the item minus, the depreciation, which will in turn result in an actual cash value settlement.
Another important element to understand is what perils your contract covers. Most marine contracts today provide "All Risk" protection. Policy wording will look something like this: "We cover the following property against accidental direct physical loss or damage, except as specifically excluded." Here, the onus is placed on the insurance company to prove that something is not covered. Common exclusions include:
The other contract that lurks in the depths is called a Named Peril Policy. If you ever run across a policy which begins to state the perils covered such as fire, explosion, collision, lightning, this is a Named Peril policy. Here, the onus is on the insured to prove that the property is covered, and that the loss occurred. If the resulting damage is not caused by one of the perils, there is no coverage. Swim gingerly in these waters, as Named Peril policies are most limiting!
Another extremely important coverage found in your yacht policy is Protection and Indemnity (liability). This coverage usually is broken down into three sections. The first section provides protection for any property damage or bodily injury you cause to others resulting from the operation or use of your vessel. This includes, under most contracts, pollution liability, which, in today's environmentally-sensitive world, is most crucial. The second section provides protection for claims arising out of the hiring of personnel in the maintenance or use of your boat (Federal Longshoremen's and Harbor Workers' Compensation). The third section provides protection for wreck removal. Make sure your policy, as wreck removal can be expensive, and you will need the better part of your limit to cover this. One note, if you have a personal umbrella policy, make sure that the underlying limits that have been set forth for your yacht policy are properly satisfied. Most insurers require $300,000 for Protection and Indemnity coverage to satisfy the Umbrella.
Other important features of your contract include Medical Payments, Uninsured Boater Protection, Personal Property, and Commercial Towing and Assistance. Review these coverages to be sure that the coverage limits are adequate for your particular situation.
Your yacht policy also contains some warranties, that, if violated, can void coverage. Two worth mentioning are your Navigation Warranty, which specifies the area in which you will operate your boat (i.e. Eastport, Maine to Cedar Key, Florida) and your Lay Up Warranty, which specifies when, if at all, your boat should be laid up, out of commission (i.e. 11/1 to 4/1). Some things to remember: if you are planning to travel beyond your navigation territory on a cruise for a short period of time, purchase a trip ride to cover this. Indeed, this is usually much less costly thatn purchasing an entirely new navigational territory. Also, if your plans change in decommissioning your boat, call your agent to extend the navigation period. The bottom line here is - always communicate your plans to your agent.
Enjoy your boat, and most of all, have fun!