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Insurance seems to be an necessary evil. In general, if you owe a mortgage on an asset, the holder of the note requires that you purchase insurance, essentially to protect their investment, not you or your asset. I have owned large vessels since 1968 and have spent thousands of dollars on insurance since then and never filed a claim. Some of the policies over the years were required as I carried a mortgage on some of the vessels. I own Millennium Dragon and have no liens or notes or mortgage on the vessel. The Dragon is Documented with the US Coast Guard and registered with the State of Florida. I am not required to carry P & C insurance. So my decision to insure is not based on a requirement of a lender, it is based on my personal needs and how much of my net worth I choose to put at risk.
Millennium Dragon cost slightly over $500K in 1999 dollars to complete. in Spring of 2007, as a requirement of Markel Insurance company a survey was completed when the Dragon was hauled at Gulf Marine Ways. The surveyor estimated replacement cost at $589,000.00 and current market value at $408,650.00. The question is, “How much do I need to Insure this vessel for and how much am I willing to pay in premium?” The cost of insurance varies with the insured total loss amount and the deductible written into the policy. The deductible is a function of the insured value and the cause of any damage. For example, if the deductible is 7% it may be doubled for damage caused by a “Named Storm” in hurricane prone locations. Living with a high deductible (high replacement cost policy) results in higher premiums . Living with a lower total loss value reduces the premium and the deductible. The face value of the policy purchased should be based on several issues. The first question is, “What is my asset worth?”. The next questions are, “What am I willing to pay in premiums?” and “How high a deductible an I willing to live with?” In addition, one of the major causes of declaring a vessel a “total loss” is sinking. Multihulls in general and Millennium Dragon in particular will not sink. The need to insure for replacement value is therefore lessened.
The surveyor felt market value was over $400K and replacement cost at $590K. This means that if the Dragon were destroyed and declared a total loss, I would need $400K to replace her with a comparable used vessel and $590K to replace with new. The Dragon lived through Hurricane Charlie in 2003. The eye of this category 4 hurricane passed directly over my home and the Dragon. She suffered only cosmetic damage and the loss of a sail cover (that was excluded from coverage anyway). The damage was several hundred, not several thousand and nowhere near the deductible specified by the present policy. Insurance is very expensive and money spent on insurance is not available for the cruising kitty. So, if I insure the Dragon for less than replacement value, how much less so that premiums and deductibles are kept in a reasonable range? The answer is to determine how much I would be willing to add to the amount received from insurance to replace the Dragon. If I am willing to add nothing, I need to insure for $408K and live with a high deductible. If I am willing to add $60K, I need to insure for $350K and have the benefit of a lower deductible. How little total loss coverage is too little and what are the possible consequences of underinsuring a vessel?
If a grossly underinsured vessel is significantly damaged the insurance company is more likely to declare it a total loss. When this happens the insurance company takes over ownership, pays the face value of the policy then sells the vessel for salvage. In theory, the insurance could actually make money under this scenario if the total loss coverage is paid (the insurance company then owns the vessel) and is able to sell this asset for more. Sometimes it works out the other way. If the vessel is worth far less than the total loss paid, the insurance company may sell the vessel back to the owner for very little money. If the owner has the time, resources and ability to repair/rebuild the vessel at minimal cost, the owner may come out ahead. For a vessel such as Millennium Dragon a policy for less than $300K would be gross under insurance. I determined I could live with the premium resulting from insuring Millennium Dragon for $350.000.00.
A copy of my Markel insurance policy is reproduced below. The latest premium payment is presented first. The policy follows. Insurance is available, even in South Florida, for a vessel the size and value of Millennium Dragon.
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