Marine Insurance

[wsmurdoch]

I retired this spring and have just bought a 34' sailboat on the North Carolina coast. The boat represents 3% of our total assets, and we spent 4% of our investments to buy it. I own the boat free and clear. The question is, "Should I insure the boat?"

My wife, a retired insurance agent, looked at a number options and settled on BoatUS rejecting State Farm who have the rest of our insurance.

I am hesitant to go without liability insurance and plan to carry $300,000 of Boating Liability (Protection and Indemnity): Property Damage/Bodily Injury, $500,000 of Fuel and Other Spill Liability, $10,000 Medical Payments – Limit Per Person Each Accident, and $300,000 of Uninsured Boater Protection – Limit Each Accident. That will cost me $289 per year. I also carry a large umbrella policy that would pick up after these limits. I figure my protection here is really for the remainder of my assets, and I want it to protect me in case someone comes looking for the rest of my assets.

If I include Boat and Boating Equipment (Agreed Hull Value), the annual cost would be $1224. I am not sure that I need this coverage. The way I look at it, the most I could lose here would be the value of the boat. While I would hate to lose what I paid for it, it would not kill me. In addition, the stock that I sold was uninsured, and I have been for years at risk of losing it without undo worry.

Am I making a mistake?

 

[Brat]

My son owns a boat yard in Oregon.  My observations may not be his own but I have seen what happens when a boat has an accident.

Vessel damage insurance may not be important to you if the boat isn't high value (you could always select a high deductable).  There is a cost to taking it to the dump, but that would fall into the salvage risk.

Risks boaters rarely consider is the rescue (boater's towing),  enviornmental damage (fuel spill), and salvage (you may not be able to leave it where it sinks) costs.  $300,000 may not be high enough.  

The other risk is if your boat causes damage to others- the marina or other boats.  The most frequent causes are fire and sinking while tied up.   I know of several multi-vessel marina fires caused by electrical problems or a propane leak.  The vessel two slips down may be worth .5 M, need to be salvaged, and there may be associated enviornmental damage (that boat may have 100 gal of fuel on board).  It isn't unusual for a marina fire to impact 8+ vessels.  I assure you $300,000 isn't enough! Up your limits.

If you don't have guests on your boat you don't need to think about what might happen if s/he is hit in the head or knocked overboard by the boom.

Some of the above may be covered by your umbrella policy. Be sure to read it's provisions!

 

[dory36]

Statistically, self-insuring is probably a good idea, but obviously not for the guy whose boat sinks.

The coverages you describe sound typical from what I have seen. The liability coverage will probably be required if you plan to keep the boat at a marina, or stop at one for any period of time.

But the rate sounds a bit high for hull coverage. (Or you may have a new Hinckley that cost a half mil...)

Check around. When we bought DORY, the first policy was ~$2500 a year. The 2nd year we shopped and found slightly better coverage for $1200. The third year we found coverage for about $700, even though we raised the value and lowered the deductible. The last and best one was BoatUS.

These were for full time cruising, for the whole east coast, Bahamas, and Gulf of Mexico for Nov 1 - May 31, and Pamlico/Albemarle Sounds plus Chesapeake & tributaries and northwards (generally out of hurricane zones) from June 1 to Oct 31.

If you use the boat just for weekends during boating season, they ought to adjust the rates, with a provision in the policy that the boat is out of commission during specified months.

You might also shop for a higher deductible - maybe premiums will be lower if they are only insuring for a near total loss, and not a bent prop.

Whether or not to insure the hull -- do or would you put fire insurance on a vacation home? Or your primary home?

If you are planning to cruise full time, then hypothetically, one thing hull insurance might do for you that you didn't mention is save your life. When things really go sour, whether it is a fire, a bad storm, or rapidly taking on water, it would be best to be able to make decisions based on your best judgment, minimizing financial considerations.

Our boating crowd was composed of full time cruisers. Talking with a bunch of them after the hurricane hit the middle Atlantic coast a year ago, it seemed that everyone got their boats to the safest places they could reach, and secured them as well as possible. Then, those of us with insurance went to wait it out in a safe place on shore, while those without hull insurance mostly stayed with their boats. Would you walk away (or dinghy away) when that was the prudent action, or stay and try to protect your uninsured boat?

By the way - be sure to cruise up the Dismal Swamp Canal (Elizabeth City NC to Norfolk VA) before it is closed. (It's open on emergency funding only now - probably closed within a year or two.) Elizabeth City offers a free dock for a day or two, and a free boater welcome party whenever 4 or more boats are at the dock. North of that is some of the most beautiful wilderness cruising you'll see. You can also stay at a free dock at the NC Welcome Center, an easy day's cruise from Elizabeth City.

 

[wsmurdoch]

I had not thought of a marina fire caused by my boat although I should have. Ten or fifteen years ago a propane BBQ grill on the deck of a houseboat in our marina here in Tennessee burned and took out a whole dock of houseboats. I did not see the fire, but I did see the aftermath. It would be hard for the grill owner to escape the liability.

Neither had I thought of different cruising limits for different seasons of the year. I'll have to check that out. I may be paying for more storm risk than I am bearing.

I wish there were some analytical way of determining what insurance is attractive and what is not. After all, an insurance policy is an asset with no value that produces an average negative return with variability in the return exactly canceling part of the variability in the return of another asset. There ought to be some method in portfolio theory to evaluate whether is should be bought or not. To me it seems odd that I would sell stock that I do not insure against loss and buy a boat that I do insure against loss.

We bought a Tanzer 22 in 1981 and still have it. Over the years we have in total sailed it everywhere from north of Baltimore to Cape Lookout, from Conway, SC to St Augustine, and from Knoxville, TN to Paducha, KY. During that time we have twice visited Elizabeth City by water; once from Deltaville, VA coming south and once from Edenton, NC on a circle trip to Roanoke Island and back. You are right. The Dismal Swamp Canal and the Pasquatank River are unique places, not to be missed, and one of the reasons I bought the new (to me) boat.

 

[Nords]

Valuing insurance liabilities & risks

I wish there were some analytical way of determining what insurance is attractive and what is not.

Bill, call me if you figure this out. I'll sell it to Warren Buffett & Ajit Jain; we'll make millions!