Understand Marine Insurance
As thousands of boaters discovered after four hurricanes battered Florida in a six-week period, the details of a marine insurance policy can make a huge difference in the eventual payout for damages. The hurricanes were estimated by the country’s largest boat owner’s association, BoatUS, to have caused about $680 million in damages to boats alone. While many boats were covered in full, some policy holders discovered to their dismay that the insurance check didn’t even cover the costs of salvage. Dozens of boats were stranded in canals and bayous because their owners couldn’t afford to have them towed — much less replaced.
“Boat insurance can get somewhat complicated,” says Mike Smith, president of Global Marine Insurance in Traverse City, Michigan. “Often, the romance of buying your boat overcomes the logic of what type of insurance you need. Many people don’t look into the details. But the time to understand your insurance is not when you’ve had a loss.”
“Options don’t vary that much in most car policies because they’re regulated. What’s covered is mostly the same across the board,” says Jim Nolan, vice president of underwriting at BoatUS. “Boat insurance is basically unregulated. The same loss may or may not be covered under different policies, and even when it’s covered, it may not be covered to the same degree from one company to the next.”
Does your policy cover fuel spills? Will your coverage lapse if you run offshore? What happens if someone else is driving your boat and has an accident — does your policy cover you for liability? These are questions you need to ask before anything bad happens. The most important distinction, insurance experts agree, in any marine policy is “Agreed Value” vs. “Actual Cash Value.” The agreed-value policy, which commands a higher premium, covers the boat for its replacement value. “On a true agreed-value policy, the insurer will pay whatever it costs today to replace a partial or total loss,” says Nolan. The actual-cash-value policy, by contrast, factors in depreciation at about 10 percent per year.
“For what we spend for our boats, it’s just plain irresponsible not to have an agreed-value policy,” says John Canavan, an independent insurance agent. “There are some who will disagree because of the higher costs, but they’ll be the ones complaining if they ever have a catastrophe.” Canavan knows that firsthand: He recently sheared the drive off his Crownline on a rock. But he was also covered in full with his agreed-value policy. “Travelers took care of it, and we were up and running the next weekend,” he says.
“There are people who choose an actual-cash-value policy because they have boats that aren’t worth much, so the chance of having a big financial loss is minimal,” says Nolan. “But I like knowing exactly what I’m going to get back with the agreed-value policy.” Some owners dwell on the worst-case scenarios, figuring that if their boat sinks or catches fire, they’d rather have a new boat than an insurance check for only part of its value. But partial losses are much more common, according to Nolan.
The most common claim, he notes, is for damage to the outdrive. Under BoatUS’s agreed-value policy, Nolan says, the drive would either be replaced or rebuilt, minus the deductible. Under the actual-cash-value policy, you’d have to factor in the depreciation value of the outdrive, minus the deductible. If the drive’s 3 or 4 years old, that could add up to 30 or 40 percent of its value. Throw in the fact that new drives have increased in price over the years, and you could be shelling out much more than you’d expected. “Some policies don’t cover ’external machinery’,” Nolan says, “That could be interpreted as your outboard’s drive.” Other policies, he adds, might have a clause that stipulates that the boat must be “seaworthy under normal wind, wave and weather” conditions. “They’re trying to exclude improperly maintained boats,” he says. “But let’s just say your boat’s at the dock, and a hose gets chafed or a bilge pump fails, and the boat sinks. A clause like that can exclude coverage.” With marine insurance, the devil is always in the details.
Many owners wonder whether they should insure the boat with a marine specialty provider like BoatUS or a marine insurance agency like Smith’s, or use the one-stop-shopping approach a homeowner’s policy provides. That same question posted on Crownline’s owner’s website elicited a variety of replies on how to handle it. “We insure everything through State Farm,” Kris Hartman wrote. “It’s easier to deal with one insurance company.”
Hartman said earlier this year her family put in a $10,000 claim to State Farm for outdrive damage. “It was complicated because the damage was done in one state, I live in another, and the repairs were made in a third,” says Hartman. “They went through the entire claim process and then transferred it to Texas, where it was repaired. We basically had to start over.” Despite the wait, Hartman says State Farm was “generous” about the claim and replaced the drive with a new one, except for the prop, which was repaired.
Mike O’Neil echoed his good experience with State Farm for an outdrive engine replacement, and later for a $1,000 gelcoat repair to his Crownline 225: “No problem, no hassles with them ever.” Other kudos were heard for Allstate, USAA, Travelers and United Marine Underwriters. But other Crownline owners say they prefer dealing with marine specialty insurers. “I thought it would be better to have an insurer that is more familiar with the marine world than one with autos or homes,” wrote Rick Olson.
Besides the national mainstream insurers, Canavan says that finding an independent agent who knows about marine insurance can be a “hit or miss” proposition. “Our agency does not specialize in boating policies, but I know quite a bit about it because I’m a boater,” he says. “Other guys in my office don’t know a thing.”
Still, an independent agency may have something of an edge over the national companies because it can shop around to different underwriters for more diverse policies at competitive rates for boat owners. That edge may be even sharper if the agency only deals with marine insurance.
Global’s Smith notes that a good marine insurer understands all the “fine details” in a comprehensive marine policy. He says that there are significant differences between a true “yacht policy,” which has been derived from traditional Lloyds of London policies. A yacht policy has many technical provisions that might not apply to small-boat owners, but it also guarantees “protection and indemnity” for circumstances like boat salvage — something many Florida boaters may have learned the hard way. A “regular boat policy,” by contrast, may charge the costs of salvage against your stated amount of coverage, and that may eat up any replacement money.
“Our policy and most marine policies have separate pools of money for repairing and salvaging the boat,” notes Nolan, who adds that some homeowner’s policies also limit salvage amounts to 10 percent of its overall value. That, he says, left many Florida boaters “high and dry” in mangroves after the hurricanes. Other policies can exclude damage from lightning, freezing, boating outside continental waters, trailering the boat outside your region, and personal property coverage.
Beyond the agreed-value vs. actual-cash-value debate, it’s vital to determine what else the policy covers. An agreed-value policy this writer bought recently from BoatUS, for instance, included $100,000 in boating liability coverage, $1,000 medical payments per person for each accident, $100,000 in uninsured boater protection, and $500,000 in fuel and other spill protection. The policy also covered the trailer, but with a $50 deductible. Each company varies on the amount of specific payments, so again, check out the details.
“Every policy is different,” says Nolan. “It’s hard to compare apples to apples.” But a good agency, says Smith, should be able to do a line-by-line comparison to determine which policy is best for your particular situation. “You should always talk with the agent on the phone and make sure you get a quote in writing,” he adds.
Smith warns that there are many “slippery people” in the insurance business, so it’s typically better to go with a highly respected carrier or agent. Boaters can also check an agent’s credentials with the state department of insurance, and Smith also recommends calling the Better Business Bureau (BBB) to research complaints. “We’re licensed in 48 states,” says Smith. “But the field is so unregulated you really need to make sure you’re dealing with a reputable agency.” They’ll not only help you with the gory details, but give you the balance of protection and cost-savings that your boat deserves.