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ABCs of Marine Insurance

What You Need To Know About Your Boat Coverage

When a yacht owner hears: "My lender requires me to carry insurance to cover the boat loan," or "The marina requires insurance to keep my boat in their slip," The yacht owner rightly asks, "So what's in it for me?"

Well, for a nominal premium--say in the neighborhood of 1% of the vessel's value--an insurance company agrees to indemnify--that is, make you whole--for anything that can happen to your boat during its normal operation and during vessel storage. The insurance company will repair damage caused by weather perils, including wind, rain, hail, lightning strikes and wave action; any damage caused by theft, vandalism or collision with docks and other boats; and include coverage for liability exposures, too.

Although yacht insurance is not required by the state, which is true for the owner of an automobile, it is in the yacht owner's best interest to secure an insurance policy to protect the vessel and his or her assets. Peace of mind is what's in it for the yacht owner. Of course, the insurance company will not maintain your boat, nor will it pay for damages caused at your direction or on purpose. Items that are damaged as a result or normal wear and tear are not covered in a yacht insurance policy, and most are subject to depreciation when a claim is settled.

And if you are sued, even if it's only an allegation, your insurance policy acts as your legal defense. If you are found legally liable for an accident or damages, the company will provide protection of your assets, to the limit of the policy. Peace of mind is what the insurance policy gives the yacht owner. The typical yacht insurance policy provides protection under two major coverages: physical damage and liability.

The physical damage section of the policy covers the hull and machinery against accidental physical loss or damage, and generally includes engines, sails and other equipment normally required to operate the vessel. The liability portion covers the legal obligations of the insured person to a third party, and can provide payments for injured parties, pollution, damaged property and related defense costs. At a minimum, you need to buy a policy that includes this basic coverage.

A truly comprehensive yacht policy also includes uninsured boaters coverage, medical payments, personal property coverage, towing and assistance, and coverage for paid crew under the Federal Longshoremens' and Harbor Workers' Compensation Act.

Many factors are considered by a marine underwriter when determining the rate to charge for a yacht policy. The key determinants include: value, hull configuration, size, speed, age and condition of the vessel, type of engines and value of additional equipment onboard, mooring location and navigational limits--meaning permitted area of usage, driving record of the vessel owner, and the vessel owner's previous loss history.

The underwriting process also considers credits, which reduce your annual premium, for the completion of accredited boating safety courses such as the U.S. Coast Guard Auxiliary and U.S. Power Squadron.

Additional rate reducing factors include a yacht owner's extended claim-free history--a minimum of three to five years without a boating loss, upgrades to a vessel's safety features or storage security, and the restoration of an older boat. An extended lay-up period, which is the time when your boat is in storage and is not being operated, can significantly reduce your premiums in some areas of the country.

A yacht owner who wants to maximize rate reductions can also request a high policy deductible, but the yacht owner must be prepared to pay the out-of-pocket costs if a loss occurs. Yacht policy deductibles are generally offered in the range of 1% to 5%.

Two types of yacht policies exist in the current market place, one called agreed value and the other called actual cash value. The cost to the yacht owner varies significantly depending on policy choice. An agreed value policy is often described as "new for old," meaning if your vessel suffers a total loss, the insurance company pays the policy limit, or the agreed value of the vessel, subject to a deductible.

The actual cash value policy differs in that it pays only the market value of the vessel at the time of the loss, taking into account depreciation and the condition of the boat.

In terms of premium, an agreed value policy typically costs the yacht owner more, and provides a higher degree of overall coverage. An actual cash value policy is more economical and may be a prudent choice for the owner of an older vessel.

There is both an emotional and financial investment involved in the purchase of a new yacht, and as the owner of a yacht, you need to understand the importance of securing the finest insurance coverage to protect this investment, and finding an insurance company who understands this too.

Note   INAMAR Insurance Underwriting Agency, Inc. provided this article. You can find their Web site using this URL:

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