What Insurance Policy is Right for Your Yacht?

Yacht ownership affords great pleasure and privileges. With great privileges, however, often come unpleasurable liabilities. Incidental risks associated with owning and operating a vessel could be unforeseeable, costing you a fortune after an unfortunate event. Yacht insurance is a critical asset protection tool that mitigates an owner’s unexpected financial liability.

If you are new, or even experienced, in the yachting industry, navigating insurance options can seem daunting. There are several insurance carriers that offer varying degrees of coverage. This article serves as an overview of the typical options in yacht coverage, including strategies to narrow down options and attaining the best tailored package that meets your vessel’s needs.

Insurance premiums are ultimately based on the value of your vessel, so the best suited policy takes into consideration your vessel’s size, type, age, condition and market value. The vessel’s home port and location of use are factors as well.  

Physical damage vs liability policies

Generally there are two types of yacht insurance policies available to owners: physical damage and liability (otherwise known as Protection and Indemnity). Physical damage policies cover accidental damages to the vessel or machinery, such as the hull or engine, and mechanical malfunctions of equipment used to operate the vessel. Additionally, there is emergency towing and assistance coverage, which reimburses you when emergency assistance is needed. The most useful physical damage policies are those that provide “all risk” coverage, which serves as a default coverage to losses that are not expressly excluded in the policy, including, but not limited to, weather related damages, damages caused by third parties (eg. theft), and collisions with docks or other boats. It is also important to seek a physical damage policy that extends coverage of the vessel while in storage or on land.  

A physical damage policy provides coverage on an agreed value or an actual cash value.  A cash value policy tends to have a less expensive premium but provides only the fair market value of the vessel if a total loss occurs while an agreed value policy will pay the amount shown on the policy in a situation of a total loss. Another consideration is that unlike in agreed value policies, in actual cash value policies, the physical depreciation will be considered.

Liability policies, however, cover damages or injuries caused to third parties and also aid in the payment of legal defense, if a legal dispute should arise. Under this category, an owner should ensure their policy covers liability for clean-up expenses in case of pollution or contamination caused by the vessel. The current statutory limit for such liability is roughly one million dollars. An effective liability policy will also cover statutory liabilities for workers, such as those imposed by the Federal Longshore and Harbor Workers’ Compensation Act.

It is crucial to note most yacht policies are limited to recreational yacht usage. Typically, yacht policies exclude coverage of vessels chartered to someone else or used to transport passengers for a fee. While vessel chartering is not covered under the liability category, most companies do offer additional coverage for the temporary operation of a third party’s vessel.

How to secure the right yacht insurance

So, what is the first step in securing the right yacht insurance? Research. Research the various insurance products that insurers have to offer. Consider your vessel’s features, as mentioned above, and assess which policies are adequate and—more importantly—which are unnecessary. This can help you save on costs. Whenever you are in doubt, seek advice and guidance from competent yacht advisors who understand the necessary coverages relative to your assets and the best insurance products that satisfies your vessel’s needs.    

Finding the right yacht insurance will allow you to enjoy your luxurious vessel – all with the ease of mind, knowing the vessel, and you, are protected against the unknown.  

****This article is not legal advice or a legal opinion and should not be considered as such.  Other requirements may be applicable to your yacht.  Please reach out to your yacht lawyer to confirm that you have met the requirements of your insurance policy and remain in compliance with its provisions. ****