Buying a Yacht? Make Sure You Understand Your Insurance Needs

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’re the current owner of a yacht or still in consideration mode, let’s discuss a yacht-related necessity to prevent anything from dampening your cheer: insurance.

A boat is typically considered to be 26 feet or smaller, while a yacht is 27 feet or more. Many boats have at least some insurance coverage afforded through a homeowners insurance policy. However, yachts require more 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.

Let’s talk about liability first, as it’s pretty straightforward. This part of your policy protects you financially should anyone get injured while on your yacht or if their personal property is damaged while they are on board. It also covers any incidents your yacht might be involved in that cause damage to someone else’s property, such as another person’s watercraft or dock.

Hull insurance is the part of the policy that 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 in the event of a total loss.

As for deductibles — the amount of money you’ll be expected to pay for a loss before insurance kicks in — you can always increase the deductible amount to lower your premiums. But consider this carefully. The typical policy carries a deductible based on the value of the yacht. For example, a $150,000 vessel would have a 1%, or $1,500, 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 document itself, such as fires, lightning, wind or theft. If it is not listed, it is not covered. Unless you plan to remain almost exclusively docked, a named peril policy is quite restrictive and will not provide adequate coverage for the broad range of unexpected situations a yacht may encounter.

• An “all-risk” policy is recommended by most boat associations and maritime insurance groups. As the name implies, this policy type covers a broader range of risks — but not all. When you buy an all-risk policy, all risks — except those specifically listed as an exception — are covered.

Understand the details

If you have an all-risk policy, you can expect these typical exclusions: wear and tear, marring, denting, animal damage, manufacturer defects, ice and freezing. However, don’t assume this is the comprehensive list for your own policy. Read the fine print and ask your insurance professional directly about the details of your policy, as well as each exception.

Depending on what gaps you find in your base policy, you may want to purchase some additional coverage options. Some of the more common policy add-ons include:

• Consequential damage: This covers losses that result from a failed part, frequently one that is underwater or not easily seen by the yacht owner. However — and this is a big point you need to understand — any failure due to corrosion, mold, or wear and tear will not be covered, because this is considered a “lack of maintenance” issue.

• 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 and may be useful if you often travel far from shore or your yacht is older.

• Cruising extension: If you dock and travel in U.S. waters exclusively, this is not necessary. However, this is important coverage to add any time you want to take your yacht into international waters, such as the Caribbean. This is not coverage you must carry year-round, but be sure to let your insurance professional know of any trips you have planned outside your usual usage areas, just 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 complete a comprehensive review of your yacht features before writing your policy, but don’t forget to follow up each time you purchase an upgrade or new equipment so your policy remains relevant.

• Salvage: Some policies do include the cost of salvage, but it may be limited to 25%-30% of the insured value, or 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 perilous or dangerous situation.

To help you evaluate your policy before add-ons, consider these standard yacht policy deductibles and their limits (meaning the maximum amount you will be reimbursed):

• Medical payments: $10,000

• $5,000 limit for personal effects after a $250 deductible

• $500,000 limit and no deductible for uninsured boater coverage (should you be involved in an accident with a boat owner who does not carry adequate insurance)

• $1,000–$3,000 limit with no deductible for towing

• $1,000 limit after a $250 deductible for fishing equipment

• $1,000 hurricane haul-out coverage to help when a boat must be moved to a safe location or prepared to withstand a storm

If any of these limits seem inadequate, inquire about available enhancements.

Responsibilities of ownership

Let’s go back to that “lack of maintenance” issue mentioned above, because it can make or break you. Every loss you submit will be scrutinized before payment. Imagine your yacht sinks and there is a fuel spill. Your policy may include fuel-spill liability but only as part of a “covered loss.” Therefore, 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.

As another example, it is paramount that you follow the “warranties” of your policy, which are the parameters of usage that you agree to follow as a condition of coverage. This includes:

• Navigation limits: the specific waterways you can travel

• Lay-up limits: the agreed-to time periods when the yacht must be laid up, usually winter months

• Seaworthiness: the yacht must be fit for its intended purpose

Although most warranties are outlined specifically in the policy itself, admiralty laws may imply additional warranty (such as the requirement of seaworthiness, which 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 October 1 and you have an incident on October 2, you forfeit your protection. No compliance equals no coverage.

Breach of warranty

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, 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 you don’t have to pay an outstanding loan amount.

Smooth waters ahead

While these and other details of yacht insurance may seem daunting, an insurance professional with marine expertise can help you craft a specialized, individual policy that covers your unique situation. And with this due diligence completed before you hit the water, you’ll be more likely to have the adequate protection you need for your seafaring adventures ahead.

Request an Appointment with V.F. McNeil Insurance or Call (203) 481-2684 to speak with an insurance agent with any questions you may have about getting yacht insurance in Connecticut.