Navigating Marine Insurance So You Don’t End Up Underwater
By: Scott Way
It’s gleefully easy to avoid the fine print when making an exciting purchase, but learn that lesson the hard way just once and you’ll carry a magnifying glass in your pocket for the rest of your days. It’s no secret insuring your boat isn’t as much fun as buying it, but the punishments for skirting the liabilities can quickly scuttle your dreams. Insurance has been around since about 1710, and not surprisingly that first insurance office is still in business. In fact, they’re Britain’s largest insurance company- Royal & Sun Alliance- who happen to also service all of Canada. The point is, insurance isn’t going anywhere so you might as well get onboard.
The Seasonal Sales Cycle
There are typically three ‘sales cycles’ throughout the calendar year that coincide with buyer’s needs and demands. The first is in January, when tradeshows entice prospective owners with off-season incentives. The second surge comes in spring, usually in May/June, when buyers suddenly realize summer is here and they’re stuck on the dock. Spending summer on the water is everyone’s goal, so be aware leverage rests in the hands of retailers/owners when demand is highest. And the third, and often most unpredictable, occurs during the fall in September/October when owners become sellers looking to clear inventory before winter bogs business down. Depending on your needs (and your patience), you’re apt to hear that fall is the ideal time to finagle a deal, but in doing so, you’re also signing up for a winter’s worth of storage and maintenance before you can even spin the propeller.
If you’ve picked your season and picked your boat, prepare for the paperwork. You can always count on paperwork, there’s insurance involved after all. All legitimate purchases require a legal document (usually about 6 pages but variable depending on the retailer) that conveys the details for the purchase and establishes all liabilities. This document typically covers four primary categories: 1) a survey of the boat from a reputable marine surveyor, 2) a ‘mechanical sign off’ from the retailer denoting the agreed upon condition of the vessel to the purchaser, 3) an agreement between all parties that the purchaser has been properly ‘familiarized’ with the vessel, and 4) the particulars of the ‘hold back clause,’ which allocates a portion of the purchase funds to a broker in the event any items in categories 1-3 come into dispute. If categories 1-4 are agreed upon between all parties and you’ve signed the paperwork, you are now ‘on the hook’ for the vessel.
Paying The Taxes
Now, first things first: the taxes. Good ‘ole taxes. In Ontario, HST (Harmonized Sales Tax- 13%) applies to all boat purchases, even private sales. This means if you purchase a used boat through a third party service with a handshake deal, you are still required to pay HST. If you make the purchase without paying HST and go to license your boat for insurance purposes and there’s no record of HST payment, you will not be able to secure insurance. However, the value of a boat can be self-assessed between parties in a private sale, thus affecting the taxable amount on the purchase. If you’re looking at a vessel of foreign origin, there is duty on any boat outside of NAFTA. If the boat has North American origins there are no additional duties, but anything beyond that geography will incur additional import costs.
Getting Your Marine Survey
Now that you’re resigned to paying HST (or equivalent tax), the next step is to ensure the 4 primary categories of a legal purchase are satisfied. A survey from an established marine surveyor is generally required by a loan provider or insurer to complete the transaction. Most banks and insurers have a surveyor they utilize, so consult with them to guarantee the survey you receive will be accepted. Marine surveyors require the boat be taken out of water for inspection, so be prepared for any additional time or costs this may require. If it’s the dead of Canadian winter and the boat is moored up, it’s coming out at your expense. There’s also a required on-water test where all mechanical and electrical components are checked, so the boat will go for a shakedown run as well. You should be encouraged to attend the survey, so don’t hesitate to come along for the ride (if you’re not being encouraged to attend, consider that a big red flag). A critical tidbit of knowledge is that surveyors do not check engines, so if you have engine concerns bring a mechanic. Surveyors will do a superficial check of the engine but are not mechanics, so plan accordingly. The surveyor will do a full assessment of value and include any mention of damage, defects, faults, or lingering issues that are currently, or could foreseeably, affect the performance and value of the boat. You can expect to pay approximately $19-21 per foot of boat length for the survey, and if done by a reputable agent this will get you closer to your new captaincy.
Qualifying For Insurance
Once your survey is complete and the retailer/dealer has familiarized you with the vessel, you should be comfortable making the purchase (and the paperwork should strengthen your comfort). But before you do, you must establish you can qualify for insurance using the aforementioned details. First and foremost, let it be known that insurance is NOT mandatory in Canada. It is not a requirement for using a vessel. However, should you be in an accident, damage another boat or property, or even sink the boat, you will be personally liable for all damages and costs incurred and will have no protection, legal, monetary, or otherwise from outside parties. That should be enough reason to contact your insurer before you purchase to a) verify the boat you want to purchase will qualify, b) that you will qualify, and c) agree on the rates/premiums subject to your needs. If you’re purchasing a boat older than 15 years, you cannot secure coverage without a marine survey. You can also be denied coverage for a multitude of reasons, particularly for a vessel that requires specialized skills or experience. If you purchase a high performance speedboat with no previous experience, an insurer is likely to disqualify you as being too high risk. Other exceptions include modifications that affect performance or structural integrity. Any abnormal modifications to the electrical, mechanical, or engine that don’t meet industry safeguards means there’s a high probability you’ll be denied coverage. It’ll be hard to enjoy your new speedboat if it’s sitting in the driveway because it has significant modifications or you don’t have experience.
As with all forms of insurance, it’s an assessment of risk and value, so if you’ve never owned a speedboat before you can expect to pay 2-3x the rate given the perceived risk. However, there are a multitude of plans for every customer, so do your own assessment of value to determine what plan suits your needs (or what boat qualifies you for coverage). As a general rule, basic marine insurance costs approximately 1% of a boat’s value per year. If you purchased a $50,000 vessel, you can expect to pay somewhere around $500/year for basic coverage. Plans like “Agreed Value” coverage offer a lower premium (but also lower coverage) and are based upon a mutual agreement between owner and insurer regarding the value of the boat. Premium coverages are also available (with a higher premium), but are worth considering if you travel extensively or use high traffic waterways. The peace of mind during white-knuckle days at the helm might be worth it.
Hitting The Water
If you’ve made the purchase but you’re stuck on shore and feeling overwhelmed about hitting the water, start with the basics. Obtain your Pleasurecraft Operator Card, which is good for life and offered by a variety of institutions including the Canadian Power & Sail Squadron. Not only will this solidify basic skills and improve your confidence, you’ll need it to license your boat. Licensing your boat will give you a unique ID that makes you identifiable for search and rescue and solidifies you’re in good standing as an operator. You may also want to consider courses offered by Sail Canada (they offer a multitude of programs for powerboating and navigation or take advantage of helpful resources like Discover Boating.
So, have you obtained your Pleasurecraft Operator Card, your license number, insurance coverage (qualified by a marine survey, mechanical sign-off, familiarity clause, and hold back clause), and a boat to match it all? Good, now it’s time to enjoy the fruits of your bureaucratic labour. The paperwork is done, so seek sunlight and open water. Explore what our waterways have to offer with the comfort that your boat is safe and so are you. Just don’t forget to keep all that paperwork safe and dry, getting all that paperwork a second time will cost you time at the helm.
- John Gullick (Canadian Power & Sail Squadrons)
- Pat Sturgeon (Pat Sturgeon Yachts)
- Drew Roberston (Gallagher Skippers’ Plan Insurance)
- Barry Goodyear (Rakon Marine Surveyors)