Boating: Insurance Bets

by Leif Larsen

Insuring the risks you can't afford to carry.

Boat owner's insurance can seem terribly complex; particularly if you read -- and you must do that! -- the typical policy. But at the bottom all insurance is a bet. The company bets that they can quote prices that permit profits from premiums and their money management. You bet your coverage removes the risk of unacceptable loss. So don't bet too high; unless you expect a physical damage loss due to accident or your own fault. Of course, insurance isn't voluntary in many cases. Lenders, for example, usually require insurance to cover their boat loan. Don't bet too low on the personal liability coverage side either. There's no limit on the foolishness and culpability of others.

Broadly speaking you buy two types of coverage: physical damage insurance to cover losses to your own boat and equipment, and liability damage insurance that covers other people's injury or property damage.

Physical damage insurance is usually called hull insurance although it takes in the whole boat. Three types of hull insurance are common:

1. Limited-named perils are specified in the policy and usually cover fire, collision, winds etc. What you see is exactly what you get here so premiums are less.

2. Broad-named perils cover "perils of the sea" due to wind, storm, shoals etc. and are broadly interpreted by the courts. Such a policy won't cover damages due to normal conditions. Exclusions like a "machinery damage" clause that limits power train recovery to that caused by perils of the sea, not owner error, are usual.

3. Comprehensive boat insurance is the most common type of policy. It covers physical loss or damage "except as specifically excluded." Do realize that you can often get coverage for these excluded perils for an additional fee. You pay more for this kind of coverage. It's a good choice for new boaters who can find odd and interesting troubles on the water.

Here are ten points to consider:

Check Rates Before You Buy 

Since the amount you pay for insurance depends on the kind of boat you own and how and where you use it, think about insurance before you buy a new or used boat. Smaller boats with lower horsepower diesel or outboard engines used in sheltered waters with a long winter layup used by skilled, accident-free skippers cost less to insure. Larger or "zoom" boats with big engines run all year in exposed waters by beginners cost more.

Some boats seem uninsurable at reasonable rates these days. Wooden hulls with big engines and ultra-high speed craft with hp/length ratios over 10:1 are tough to insure. Some states have problems too. Boats which look attractive to dope smugglers are tough to insure in Florida.

Pick An Insurance Agent You Can Trust 

Selecting your insurance agent is the most important step. Insurance agents are a bit like real estate salesmen. Their commission depends on sales so they have a vested interest in selling you the largest policy. Offsetting this is their need to compete in the marketplace. Good agents are willing to go to the wall for their clients. Poor agents won't. Good agents spend time with clients and make certain that they understand exactly what is needed. Poor agents write coverage as fast as possible. Good agents admit that they don't know the answer to a complex question, but get back to you with a clear answer. Poor agents waffle.

Marine Or Special Agent?

Do you need a specialist or should you place your policy with your general agent? Marine insurance specialists can cut costs with specialized policies, especially those with limited-peril or other coverage. A general agent who handles your other policies may know less about marine needs, but can have more leverage with claims that can go either way when he can say, "we may lose their auto and homeowner's coverage if you don't pay this." Reputation is the key, but it should never be confused with high visibility.

Shop For Coverage

Collect at least three different policies and compare them carefully. Pay close attention to exclusions! I use yellow highlighter to mark any confusing conditions, coverages or restrictions and ask the agent to explain them. Before I sign the policy I select I ask for these explanations in writing.

 Don't Over Insure

Experts agree insurance works best if used to cover only the risks you can't afford. Don't forget that insurance pools the risk of all policies in a given class, then adds on a percentage to cover overhead and the like. If you are an especially careful, cautious or skilled boater your real risk may be less than average so you might want to carry some risk for hull or other damage insurance yourself. So if you have any doubt about physical damage coverage take the smaller amount of coverage. If you can't afford to take some of the risk and responsibility yourself, you probably shouldn't be skippering a boat!

Inexpensive canoes, inflatables and other craft may not need property damage insurance. You can often replace these at a reasonable price. Older craft that, like old cars, aren't worth that much to the underwriters who value them, might not need insurance either. Exotic or antique boats deserve specially skilled agents and extended coverage.

Reduce Your Risks Where Possible

If you buy a named-perils policy you may find that you can simply remove your radio, depth finder and fishing gear after each trip, and eliminate the cost of theft coverage. Price coverage of named-perils separately and you may find you can afford to cover some on your own.

Reducing perils such as winter damage can reduce your risk and premiums

Along these lines consider a $1,000 or higher deductible, which should radically reduce your rates. A high deductible also eliminates the temptation to file lots of small claims that might cause your rates to rise or, if repeated, a cancellation of coverage.

Make Sure Your Coverage Does Not Overlap

I found out about this the happy way some years back when I was guiding, dumped a canoe and tried to recover for lost cameras and shotguns from my marine insurance. I was told I, "wasn't covered for this hazard." Then I turned to my guide's insurance and heard the same thing. Fortunately, and to my surprise, I found I was covered under my homeowner's insurance on the theory that, since I had spent three days with snorkel and SCUBA in the river and recovered some gear, the other gear was not lost, it must have been stolen by parties unknown, and so came under my policy.

However, I discovered my guide's personal liability did not extend to moving water on my marine policy and my guide's coverage did not cover this situation either. Fortunately, my guest in the boat did not sue.

Author's note: One reason I may have recovered above is that it simply wasn't worth the adjuster's time. He was dealing with 200 homes lost in a big California wildfire. Unlike many neighbors, I stuck with my house and saved it. A $500 shotgun may have seemed trivial in comparison.

In any case, I reduced my marine and guide coverage to liability only and saved several hundred dollars in premiums.

Depending on the policy you may find that boats stored at your home over winter come under your homeowner's policy coverage. In some cases, trailer boats may come under auto policies as well. In fact, you may find that you can insure against theft from trailered boats. You may also find your homeowner's and other personal liability coverage overlap with your marine policy. It never hurts to ask your agent about this. Doesn't the old saw go "the only stupid question is the one you don't ask?"

Prepare For Personal Liability

A stout fellow got a $1.8 million judgment due to the heart attack after he tried to pull-start a power lawn mower with a problem starter fifteen times. A family recovered from a boat manufacturer when the husband pushed a trailered catamaran from ramp to storage area with the mast up and was electrocuted when the mast hit a power line. Passengers sue when they slip on wet decks too, and even if they ignored your advice about the need for Topsiders.

While there seems to be a move to limit both "pain and suffering awards" and lawyer's contingent fees, there is no question but that personal liability is the largest risk any boater faces. The chance of loss is minute, but the potential damage so great that coverage should be sufficient to cover even unreasonable claims. Fortunately, the premiums for extended personal liability coverage are most reasonable.

Check The Company

Insurance companies, like savings and loans and other firms are not all equal. Some pay claims promptly; others are slower. Some drag their feet on large claims; some do not. If you do not care to totally depend on your agent, check the company you consider with Best's Insurance Guide, your state's insurance commissioner and the Better Business Bureau. Talk to a lot of other boaters. Take special pains to examine out-of-state or mail-order insurance firms that can be difficult to reach if you have problems.

No Free Luch

The Pimsol mark on marine insurance is simple. There is no "free lunch." If a policy sounds too good to be true it could be trouble later. Find a good agent, check their references, deal with reputable insurance firms, read potential policies carefully, fine-tune your coverage to suit your situation and you get value for your dollar. You won't find big bargains. Insurance companies know the odds. So it's a safe bet that a very low premium will, other things being equal, mean possible problems in eventual recovery.