Owning a yacht is a dream for many. As Kurt Vonnegut said, “Having a yacht is a reason for being more cheerful than most.” Whether you own a yacht or are still considering buying one, let’s discuss a necessity to prevent anything from dampening your cheer: insurance.
Homeowners policies usually offer limited insurance for boats and watercraft, but yachts don’t fall into this category. While a boat is typically considered to be 26 feet or smaller, a yacht is 27 feet or more. Yacht owners need specialized policies with broader coverage.
One policy, two main parts
The yacht insurance policy you buy will typically have two parts: liability coverage and hull insurance.
Liability insurance covers damage to other people and property. This part of your policy protects you financially if:
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Someone gets injured while on your yacht.
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Someone’s personal property is damaged while on your yacht.
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Your yacht is involved in an incident that damages someone else’s property, such as another person’s watercraft or dock.
Hull insurance covers the yacht itself. At the time you purchase your policy, you will need to agree to the value assigned to your vessel and how much of that amount you would be reimbursed after a total loss.
Another consideration is your deductible. This is the amount of money you’ll be expected to pay for a loss before your insurance kicks in. You can always increase the deductible to lower your premiums. But consider this carefully. The typical policy carries a deductible based on the value of the yacht. For example, a $200,000 vessel would have a 1%, or $2,000 deductible. If you are carrying a loan on your yacht, most lenders will allow a maximum deductible of only 2%.
Choices, choices, choices
There are two kinds of yacht insurance policies:
A named peril policy covers only the risks specifically named in the policy. Named perils may include fires, pirates, lightning, wind and theft. If it is not listed, it is not covered. Unless you plan to remain almost exclusively docked, a named peril policy is restrictive. It will not provide adequate coverage for the broad range of unexpected situations a yacht may encounter.
An all-risk policy covers a broader range of risks. All-risk policies typically cover every risk except the ones specifically listed as exclusions. Most boat associations and maritime insurance groups recommend all-risk policies.
Finalizing the contract language to cover your needs might require some finessing.
Understand the exclusions and other details
If you have an all-risk policy, you can expect these typical exclusions, such as:
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Wear and tear
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Marring
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Denting
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Animal damage
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Manufacturer defects
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Ice and freezing
However, don’t assume this is the comprehensive list for your own policy.
Also, confirm if your policy is an agreed value (AV) or actual cash value (ACV):
An AV policy pays a specific amount you and your insurer agree on. If your yacht is declared a total loss, the insurance company will pay you the amount of the agreement. The insurance premiums for AV policies are more expensive.
An ACV policy pays for the yacht’s value at the time of the loss, factoring in depreciation. The insurance payments are less expensive, but you won’t recoup the full replacement value of your yacht.
Read the fine print and ask your insurance agent to explain the policy details before you set sail. You might have gaps in coverage that leave you at risk.
Additional coverage to close the gaps
Depending on what gaps you find in your base policy, you may want to purchase additional coverage. Some common yacht policy add-ons include:
Consequential damage: This covers losses resulting from a failed part, frequently underwater or not readily visible. But failure due to corrosion, mold, or wear and tear may not be covered. This is considered a “lack of maintenance.”
Towing: It can cost upwards of $400 per hour to return your yacht to shore or take it to a repair facility or dry dock location. This add-on expands coverage beyond the limits of a standard policy. It may be useful if you often travel far from shore or your yacht is older.
Salvage: Some policies include the cost of salvage, but it may be limited to 25%-30% of the insured value. Alternatively, salvage might be subtracted from the total amount paid to repair a damaged vessel. A separate salvage policy would cover the full amount needed to rescue your yacht from a dangerous situation.
Cruising extension: This is not necessary if you dock and travel exclusively in U.S. waters. However, it’s important to have any time you want to take your yacht into international waters, such as the Caribbean. You don’t need it year-round, but tell your agent about any planned trips outside your usual usage areas to confirm adequate protection.
Specialized coverage: You may want specific protection for upgrades or individual yacht parts, such as navigation equipment, an expensive prop or gourmet appliances. Your insurance professional should comprehensively review your yacht’s features before writing your policy. Remember to follow up each time you purchase an upgrade or new equipment, so your policy remains relevant.
Uninsured/underinsured boaters: Make sure your policy covers you for damages caused by boaters without adequate insurance. Every policy is different; you may need to increase your coverage for this peril.
Captain and crew coverage: If you regularly employ staff for your yacht, make sure they’re covered under your liability. You may also need workers’ compensation and employment property liability insurance.
Oil Pollution Act of 1990 (OPA) coverage: OPA legislation was created to assign liability for the cost of cleanup and damages due to vessel spills. OPA coverage is usually necessary for larger vessels like superyachts. it may already be included in specific liability plans.
To help you evaluate your policy before add-ons, use this yacht policy description of limits and deductibles as an example:
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Medical payments: $10,000
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$5,000 limit for personal effects after a $250 deductible
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$500,000 limit and no deductible for uninsured boaters
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$1,000 to $3,000 limit with no deductible for towing
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$1,000 limit after a $250 deductible for fishing equipment
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$1,000 hurricane haul-out coverage to help when a boat must be moved to a safe location or prepared to withstand a storm
Ask your insurance agent about policy enhancements if your insurance limits seem inadequate.
Responsibilities of ownership
Every loss you submit will be scrutinized before payment.
Lack of maintenance: Let’s go back to that “lack of maintenance” issue mentioned above, because it can make or break you. Imagine your yacht sinks and spills fuel. Your policy may include fuel-spill liability, but only as part of a “covered loss.” If it is determined that your yacht sank because you failed to maintain a part, neither the hull loss nor the fuel spill will be covered.
Warranties: As another example, it is paramount that you follow the “warranties” of your policy. These are the parameters of usage you agree to follow as a condition of coverage. They include:
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Navigation limits: the specific waterways you can travel
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Lay-up limits: the agreed-to time periods when the yacht must be laid up, usually winter months
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Seaworthiness: the yacht’s fitness for its intended purpose
Although most warranties are outlined specifically in the policy itself, admiralty laws may imply additional warranty. For example, the requirement of seaworthiness may not be listed individually, but is still expected.
This only reinforces the fact that yacht owners should work with insurance professionals who are familiar with marine insurance and can provide expert guidance and insight.
In the end, you must commit to ongoing maintenance and adhere to all warranties. If you’ve agreed to winterize your boat by Oct. 1 and you have an incident on Oct. 2, you forfeit your protection. No compliance equals no coverage.
Breach of warranty clause
Speaking of warranties, you should also understand the value of having a “breach of warranty” clause in your policy.
Even if you violate a term of your coverage and you are denied replacement for your yacht’s value, the breach of warranty remains in effect. It will be triggered and pay the balance of your loan, thus absolving you of the additional financial burden. You lose the yacht, but don’t have to pay an outstanding loan amount.
Smooth waters ahead
While these and other details of yacht insurance may seem daunting, an advisor with marine expertise can help you craft a specialized policy that covers your unique situation.
And with this due diligence completed before you hit the water, you’ll have the adequate protection you need for your seafaring adventures.
