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Why does Boat Insurance Cost So Much?

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The knowledgeable people at Tunick Insurance, St. Thomas, USVI, answered a few common questions for this month’s Ask An Expert section. These are broad answers to general questions about insuring a private pleasure boat; each boat owner will need to have a personal, one-on-one conversation with his/her insurance agent to determine specific insurance needs. Please note that the comments and examples discussed by the Tunick representative apply only to private pleasure boats – commercial yachts and the insurance requirements for them were not discussed!

Q: Why does boat insurance cost so much?

A: It doesn’t cost that much – not really. “The cost of marine insurance is not statistically higher than the cost of current property insurance in many of the same areas – specifically USVI, Puerto Rico, and Florida.” A boat is moveable, tangible property and is subject to many elements of risk that a home, which is fixed property, is not. Factors that affect the price of insurance include age, use, and location. The Caribbean has many boats over 10 years old; and a number of boats over 20 years old. An older boat will not usually be in as good a shape as a brand new one. Insuring a sailboat that an owner will pleasure-sail on weekends is one thing; insuring a sailboat that the owner plans to race on weekends is another! A racer will need more coverage than a pleasure sailor, and that coverage will be limited. Location doesn’t just mean where the boat is stored, but also how much repairs cost where the boat is located.

Changing weather patterns also affect the cost of marine insurance. In 2004, the “Caribbean box” – which ranges from 12.4 to 23.5 north, and from 55 to 87 west – had four major hurricanes. Areas once considered to be safe havens during hurricanes – those outside the “box” – are now being hit. Private yacht losses were estimated at $387 million dollars. Losses in all marine related areas could reach over a billion dollars … and that’s just for 2004.

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Q: Is there anything that boat owners do to keep their insurance costs down?

A: Yes, there are a number of steps that consumers can take to lower their insurance rate. Insurers may credit the boat owner’s rate for several reasons:

(1) Volunteer to exit the Caribbean box from July 1 to November 1.

(2) Haul the vessel and put her in dry-dock during the hurricane season. The haul-out location can make a difference in the credit, with a higher credit being offered if the vessel is hauled outside the Caribbean box. The duration of an inside-the-box haulout should be a minimum of 60 days.

(3) Lay up the vessel while she is afloat. “Layed up” means the boat is put away for the season – you may not play with it, navigate it or live aboard.

(4) Experience and education: boaters with 10 years experience and no losses will receive the highest experience credit. Boaters who have less that 10 years experience, no losses, AND a certificate of training course completion from the US Power Squadron or US Coast Guard may qualify for an experience credit. (The experience credit applies to private pleasure recreational yachts only.)

TIP: Before you buy a power boat, find out – from the manufacturer or a surveyor – the designed maximum speed. Boats that have a designed maximum speed of over 50 mph can cost more to insure than those with a lower designed maximum speed. If you don’t plan to drive a go-fast boat at its top speed, look for another boat – you could save on your insurance rate.

Q: What are the requirements to qualify for boat insurance?

A: Common requirements are:

(1) A seaworthy vessel, determined to be such by a current out-of-water survey (no more than three years old for a vessel under 25 years old; no more than two years old for a vessel over 25 years old) by a licensed surveyor.

(2) Survey compliance. Recommendations made by the surveyor must be completed within 30 days of the date of report. In most cases, a buyer’s survey will be accepted by the insurance agent, but be aware that all items needing work – even cosmetic ones – that are listed on the surveyor’s report will have to be completed within 30 days of purchase, unless the underwriters agree to an extension. TIP: Ask your surveyor for a separate list of recommendations so that you have the opportunity to complete repairs and have the surveyor re-attend on compliance prior to the surveyor’s official report.

(3) Minimum of one year of boat operating experience; if less than one year’s experience, completion of a boating course. Lack of experience doesn’t automatically disqualify a boat owner from obtaining insurance, but it could mean that you will be expected to comply with rules laid down by the underwriter. For example, until you gain some boating experience, the underwriter could require you to have an experienced skipper on board the boat any time she is underway.

(4) Minimal or no losses of boats owned or operated by the applicant for the past 10 years. Underwriters will generally – but not always – let Act of God losses go, but be prepared to discuss the circumstances of the loss with your agent.

(5) Fully completed, signed, and dated application. The application is the statement of warranties, which becomes part of the insurance policy. If the applicant has had boat losses, this is where a boat loss would be explained in full.

(6) Premium payment arrangements. Because a boat is moveable property and usually, in the event of a total loss to the hull, the premium is fully earned, underwriters want to know how you plan to pay for your insurance. A premium payment of 30% up front is not an unusual requirement. Agents can offer premium financing, through which the insurance agent can get full payment, the underwriter gets paid, and the buyer is fully insured. The buyer then makes monthly payments to the premium finance company.

Q: Are there any policy-pitfalls the consumer should know about?

A: Yes, the consumer should always read their policy first. Generally, there should be no restriction of warranted navigable area, which could be from the Dominican Republic to the northern coast of Venezuela. You could, however, pay an increased hull deductible – which would apply to a total loss – if you are in these areas during named or numbered windstorms.

Read the fine print! Be wary of insurance policy wording that warrants the vessel vacate the Caribbean box. Your premium will be cheaper, but you will not have insurance coverage from July 1 to November 1.

The consumer should also be aware of “jurisdictional clauses.” Some policies are covered under English law practices and jurisdiction and should not be offered to US flag vessels. While the premium cost will be lower, the cost of defense (should the consumer decide to sue) could be very high. US flag vessels should have insurance that is subject to US law practices and jurisdiction.

TIP: When you are boat shopping, make certain that a boat has a valid registration number – your insurance agent will ask for that registration number. A boat that has no markings could have been stolen and moved to another island. You won’t be able to insure a “hot” boat.

Q: How much money are we really talking about for insurance? Can you give me a “for instance”?

A: Let’s use a 40-foot power boat for an example. Say the boat is from 1984, is in good shape, and has a value of $135,000. The owner has over 10 years of boating experience, no loss history, and will keep the boat in the US Virgin Islands. Common liability – which includes medical payments, uninsured boaters, and VI tax – is $300,000. Under those circumstances, that boater’s premium would be $3,500 per year.

NOTE FROM JSW: If you are a boat owner, former owner, boat broker, boatyard owner, marine store owner/worker or have experience with any other aspect of boating – insurance, haul-outs, financing, marinas … you name it – and would like to share some of your experience, I would like to hear from you. Please send your comments, and a picture of you, your boat or your business logo, to me via e-mail at SummerVI@earthlink.net. Please include your business name, website and other pertinent information. I reserve the right to edit remarks and will submit as many as I can to the publisher, who reserves the right to do even more editing.

The Tunick Building 1336 Beltjen Road, Suite 300 St. Thomas, U.S. Virgin Islands, 00802 Phone: 340-776-7000 Fax: 340-776-5765

Next month: Final comments on insurance from USI Florida, and Premium Finance, St. Croix, VI.

Surfing Spots

www.uscg.org – check under Auxiliary for boating courses; America’s Boating Course can be taken in any of three ways: on the Internet, by studying an 80-page course manual or with a CD.

www.usps.org/e_stuff/Basic.html – same course through the Power Squadrons. You can get discount on your insurance rate if you take courses; members can take additional courses, which can result in additional savings.

Boat Buying Tutorial

Guide Tips for Buying a Boat

J. Summer Westman took an in-depth study into How To Buy a Boat. I think it is a tour that each of us in the Marine Industry needs a refresher every now and then – especially before you buy or sell your next boat. These same lessons are valuable for sail boats or power boats.

Here is a handy list of Boat Brokers in the Caribbean


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