Insurance, what can you afford to lose?

[Mike OReilly]

Originally Posted by hellosailor

... With a boat? The liability issues are the same. (Think about the Marlins pitcher? Who ran is go-fast boat up on a breakwater a year or two ago, middle of the night, killed himself and two passengers, facts still being debated.) The hull insurance, the insurance against environmental issues and wreck removal, all of that will assuredly be way less than the liability, and if not affordable, well, at least just a heavy hit--rather than a total cleanout.
Some folks can afford to write a check. Others don't care...and arguably should be sent to China, where the average healthy body can be sold for $200K in parts. And another $20k if there's a good passport to be sold along with them.
Like they say a the poker table, you've got to pay to play.

See, this is is the kind of WHAT IF!!!! scare scenario that gets trotted out into scaring or cajoling people. Anecdotes and made up stories aside, the fact remains that travelling on a cruising level boat is very safe. All the stats show this. There are some areas where it is not, but generally speaking it’s not a dangerous activity.

Of course shyte happens. Life doesn’t come with a guarantee. There are no ‘do overs’ and nothing is fair. That doesn’t change the reality that the vast majority of cruisers cause no significant damage to themselves or others most of the time.

Liability insurance is usually a good deal, mostly b/c it’s cheap. But it’s cheap b/c, not withstanding all the anecdotes people produce, the real risk to the underwriter is small.

BTW, valhalla360 I was wrong in part of my response to your thoughtful comments. You are correct (and I am wrong) to say risk is risk. Impact does matter, and is different for each person. So risk is different for different people. This is why the same insurance can certainly be a great deal for some, and a terrible deal for others.

[Chotu]

Originally Posted by hellosailor

"I would have paid $144,000 in insurance payments over my accident free driving lifetime. That's several completely new cars I could have destroyed and bought for other drivers for the same money."
Maybe we should band the word "insurance" unless used with an appropriate and specific modifier before it?
You blow a tire on the highway because you just hit part of the muffler that fell off some car in front of you. Not your fault. But your car swerves, hits the median, jumps the barrier, and you kill the parents and injure their two kids in the back of an oncoming car.
You may find yourself held liable for the kids medical bills, their pain and suffering, the car (average price over $30k in the US now), and oh yes, some $3-5 million dollars PER PARENT for the lifetime value of their earnings and parenting skills.
A fast ten million in one shot, and that judgment can be active for twenty years. Maybe paying a grand or two per year to insure against that doesn't seem so unreasonable, if you have a house, spouse, kids of your own that you might want to take care of. If you don't mind telling the spouse "We're downsizing" and the kids "You're on your own" and you can take the bus to work, ok, the insurance is not so valuable.
With a boat? The liability issues are the same. (Think about the Marlins pitcher? Who ran is go-fast boat up on a breakwater a year or two ago, middle of the night, killed himself and two passengers, facts still being debated.) The hull insurance, the insurance against environmental issues and wreck removal, all of that will assuredly be way less than the liability, and if not affordable, well, at least just a heavy hit--rather than a total cleanout.
Some folks can afford to write a check. Others don't care...and arguably should be sent to China, where the average healthy body can be sold for $200K in parts. And another $20k if there's a good passport to be sold along with them.
Like they say a the poker table, you've got to pay to play.

I guess the situation here you're using as an example is the real reason.

I don't crash. I've has tons of instances where bad things happen around me driving.

I pay attention (same as my never operating a boat without a watch).

I've had someone pull out a couple car lengths in front of me doing 5mph on a twisting 2 lane road where I was doing 60. Threw the car sideways, skidding in both the avoidance the correction to miss them.

I've had people crash in front of me on the highway (went around those too).

I don't hit things in the road since I pay attention.

I look both ways before crossing any intersection even when I have right of way.

I watch the rear view mirror with every stop to avoid being rear ended and put on hazards if it's an unexpected stop.

I meticulously process everything happening in front of, to the sides and behind me as I drive analyzing everyone driving around me to predict their behavior and driving patterns. Looking in the rear view to make sure I'm aware of every vehicle.

I can drive a vehicle sideways all day long having grown up in a place where the ice and snow covers the roads for a lot of the year.

I've had absolutely tons of things go wrong driving around me.

I don't drive without an "out". A way to get out of something that may arise.

It sounds like a cocky load of BS. I'll give you that.

However, absolutely zero accidents in 35 years of continuous driving. My fault or anyone else's fault. And I've driven cross country many times and from Canada to Florida and back at least once a year for a decade. That plus all the normal driving.

Insurance is mandatory in my state if you are accident prone. I'm not so I choose to be responsible for my own actions and it's worked out great for 35 years now.

Insurance is mostly a scam unless you're careless or super unlucky.

[Paul L]

Not sure if you actually have this policy or have just been quoted it. The fact that this policy does not have new for old replacement terms for most equipment would rule it out for me - assuming other policies were available in your cruising nav limits. The terms of marine policies are not consistent between policies and not significantly regulated, so you need to read each policy and every term. Some have new for old up to 10 years old for example, then depreciated. With a depreciated replacement policy you end up with very weak lightning hit replacement, something that can easily be north of $40k.

Originally Posted by rourkeh

Our perception that by purchasing insurance for our boat we can sleep easy knowing our boat is safe, even if the premiums seem like a lot for this piece of mind. The reality is quite different. I am looking at insurance for a boat I wish to buy. Cost of vessel $250,000. Premium per year $8,000. I have a LOT of experience with ownership / operation of vessels up to 100' and have never had a claim. When I examine the coverage of the typical policy I am covered for total loss up to $250k as long as the vessel is determined to be "sea worthy", and I followed all the dictates of the policy. OK so far. But if I have a partial loss like a fire, collision, damage due to inclement weather etc and I claim say $60,000 in damage the insurance company will examine the lost or damaged items, their age and condition and depreciate them for current value. Not new for old. So if I lose my electronics and furnishings in a fire and they are in perfect working order and good condition I might get a check for $30,000 to cover the $60k loss. I have to pay the other $30,000 to put the boat right. Not such a great deal, and I have been paying them $8,000 a year for the privilege. When you break down the terms of most policies you are really paying a huge premium for the worst case scenario and hoping for the best. It is not such a great deal when you read the fine print, unless you own the insurance company.

[Simi 60]

Originally Posted by Chotu

It sounds like a cocky load of BS. I'll give you that.

You said it.

All you would have needed was for the car pulling out, as an example, to have done it a few seconds later and, unless you can stop and turn back time as well, you would never have been able to avoid it.

You have been lucky.

[daletournier]

Another way to look at it is, what is the best use of funds?

I'm assuming most don't have unlimited funds, therefore putting the money where it has most impact is important.

My boat is in very good condition (I believe) BUT what could make it better?

Paul has inspired me to drop my rudder next haul out (Jan), I'm also going to pull down my oil cooler and heat exchanger as the 4jh3-te can suffer from corrosion, a boat I know recently lost the use of his engine due to oil cooler failure forcing him to sail into a unknown port.

My point is that very thorough preventive maintenance is a form of insurance. You, the skipper can be an asset or liability depending on attitude and skill set.

[valhalla360]

Originally Posted by rourkeh

Our perception that by purchasing insurance for our boat we can sleep easy knowing our boat is safe, even if the premiums seem like a lot for this piece of mind. The reality is quite different. I am looking at insurance for a boat I wish to buy. Cost of vessel $250,000. Premium per year $8,000. I have a LOT of experience with ownership / operation of vessels up to 100' and have never had a claim. When I examine the coverage of the typical policy I am covered for total loss up to $250k as long as the vessel is determined to be "sea worthy", and I followed all the dictates of the policy. OK so far. But if I have a partial loss like a fire, collision, damage due to inclement weather etc and I claim say $60,000 in damage the insurance company will examine the lost or damaged items, their age and condition and depreciate them for current value. Not new for old. So if I lose my electronics and furnishings in a fire and they are in perfect working order and good condition I might get a check for $30,000 to cover the $60k loss. I have to pay the other $30,000 to put the boat right. Not such a great deal, and I have been paying them $8,000 a year for the privilege. When you break down the terms of most policies you are really paying a huge premium for the worst case scenario and hoping for the best. It is not such a great deal when you read the fine print, unless you own the insurance company.

Insurance is typically to replace existing with equivalent. It's not intended to get a new boat or refurbish the boat. Otherwise you will have people buying 30yr old wrecks, sinking them and asking for the insurance company to provide a new boat.

You can get policies that somewhat mitigate this but expect to pay a lot for them as they attract the type of people who put in lots of claims and fight for a larger payout.

[valhalla360]

Originally Posted by Mike OReilly

I don’t understand how whether one can afford the hit makes any difference. Risk is risk. And the cost of being one of the unlucky ones is the same, whether you can afford the loss of your boat, or not. This only factors into the cost-benefit analysis of insurance; if you can’t afford the hit, then this weights this analysis to accepting a higher price for insurance.

Self insuring is basically taking a bet where the odds are in your favor. Since you don't have to pay for administration and profit of the insurance company on average you will come out better not buying insurance.

The problem is while the odds are in your favor, it doesn't mean a guaranteed win. Let's say they change the rules to black jack so the odds of winning are 60% for the player on a hand (yeah, it won't happen):
- I would be willing to put a $5 bet down because I'll probably come out ahead but if I do lose, it's no big deal.
- I probably wouldn't empty the retirement account and put it all on one hand...sure it's great if I win but if I lose...it's really bad.

Obviously the math is a bit different with insurance but the principal is the same. Only question is how big of a bet are you willing to risk?

[Fore and Aft]

Chotu until last October I had been driving for 27 years accident free. Then one day I was driving my new car home and got T boned by a guy who just drove straight out of an intersection on my left side. Absolutely no warning and a complete surprise to me.
I only purchased the car that morning and been insured for three hours! The guy was uninsured, but I am sure my insurance company is making him pay now.
Cheers

[01kiwijohn]

Like you, for and aft, I was sitting in traffic in my 200 mile new car, and has to sit and watch a drunk lady crease every panel on the left side of that brand new car.
On my first trip, in an area where I knew I was uninsured, I was particularly vigilant about my navigation, weather observation, crew assignment and watch standing. An epiphany; " why don't you sail like that all the time?". Lesson learned.
I don't subscribe to the theory that insurance is a scan, nor that the companies are evil. They're offering a service. If you don't like it, don't buy it.

[Mike OReilly]

Originally Posted by valhalla360

Self insuring is basically taking a bet where the odds are in your favor. Since you don't have to pay for administration and profit of the insurance company on average you will come out better not buying insurance.

The problem is while the odds are in your favor, it doesn't mean a guaranteed win. Let's say they change the rules to black jack so the odds of winning are 60% for the player on a hand (yeah, it won't happen):
- I would be willing to put a $5 bet down because I'll probably come out ahead but if I do lose, it's no big deal.
- I probably wouldn't empty the retirement account and put it all on one hand...sure it's great if I win but if I lose...it's really bad.

Obviously the math is a bit different with insurance but the principal is the same. Only question is how big of a bet are you willing to risk?

Yup, fully agree. My view is there are no guarantees in life, and failure is always an option. The likelihood of a bad event happening with a cruising level boat is definitely not zero. Bad things happen to good boats all the time. And when that happens, one must accept the consequences of one’s choices.

But (and I know I keep saying this, but it’s vital for people to appreciate this)… but, the fact remains the likelihood of any serious bad event happening to a cruising-level boat is very small. The world is not a dangerous place for most of us most of the time.

Of course, each of us has a different tolerance to risk. My view is that we in our rich developed societies have a decreasing risk tolerance, largely b/c we’re used to being able to insulate ourselves from bad things. I also think we generally have a poor ability to judge risk. I suspect this has something to do with the narrower and narrower bands of external information most of us have about the world, and how much of this is fear-driven … but this gets into a broader discussion.

P.S. I used to be a professional blackjack dealer, so I love your example. The house always wins, b/c the odds are stacked in their favour — much like the insurance companies.

[valhalla360]

Originally Posted by Mike OReilly

Yup, fully agree. My view is there are no guarantees in life, and failure is always an option. The likelihood of a bad event happening with a cruising level boat is definitely not zero. Bad things happen to good boats all the time. And when that happens, one must accept the consequences of one’s choices.

A lot depends where you are in life and how much you have invested:
- A 20yr old with a $2k boat and no assets to speak of...failure is an option at worst you are down $2k and you can make that up with a minimum wage job in a few months. It may not be morally right but even liability insurance could be argued against...so what if you lose a civil case...there is no money to take. Plus, you have a lot of time to recover and a lot of healthy years (hopefully) to do so.
- If you are in your 50-60's and worked hard for many years to get enough money to buy a $250k boat...losing it might take a decade or more to recover to where you can buy another...by that time, health issues may creep in and end your cruising days.

This is where the idea of "can you afford to take the loss" comes in...in the second example, if you have $20mil saved up, you might decide to risk only carrying liability because you can likely absorb a $250k loss and just go out and buy another boat....but if you are counting on SS for the bulk of you day to day expenses and you only have $350k (including the boat)...you likely won't be able to recover, so buying some protection makes sense.

[Mike OReilly]

Originally Posted by valhalla360

A lot depends where you are in life and how much you have invested:
...
This is where the idea of "can you afford to take the loss" comes in...

Yes, but my only point is that this is only 1/2 of the equation. It must also consider the likelihood of an event happening. A meteor impact is going to mean a very bad day for anyone nearby, but none of us take precautions (or buy insurance) against it. Why? Because the odds of this event are low.

The problem I see is that most people focus on the impact side of the equation, and fail to look at the likelihood factor. Look at any advertisement or marketing for insurance and it always focuses on Impact. So it’s not by accident that we focus on Impact — we’re directed there by those who benefit most from stoking our fears.

[daletournier]

Originally Posted by Mike OReilly

Yes, but my only point is that this is only 1/2 of the equation. It must also consider the likelihood of an event happening. A meteor impact is going to mean a very bad day for anyone nearby, but none of us take precautions (or buy insurance) against it. Why? Because the odds of this event are low.

The problem I see is that most people focus on the impact side of the equation, and fail to look at the likelihood factor. Look at any advertisement or marketing for insurance and it always focuses on Impact. So it’s not by accident that we focus on Impact — we’re directed there by those who benefit most from stoking our fears.

Interesting that we focus on the impact side of losing the boat so much yet theres probably just as much risk of us losing our life, yet we dont insure that in any way that benefits us, meaning we cant. My point is we cant hedge our life , yet we still go ,yet losing our life is much greater than losing the boat......im not sure ive expressed that very well.

I wonder how many of us would still cruise if there was no such thing as yacht insurance?

[Mike OReilly]

Originally Posted by daletournier

...I wonder how many of us would still cruise if there was no such thing as yacht insurance?

There’s a good question. Maybe a simple poll? "Would you cruise the way you currently do without hull insurance (leaving out the liability aspect)?"

My sense is that cruisers through the 60s, 70s till about the mid-80s more likely ventures off without insurance compared to today. But this is from anecdotal data only … I would love to see hard numbers to know if this is true. Perhaps some of you actual old salts can chime in here.

The growth of insurance might explain the growth in average boat size. Average boat size appears to have increased from the 70’s to today. I wonder if the development of insurance has supported this expansion.

[belizesailor]

Originally Posted by daletournier

Interesting that we focus on the impact side of losing the boat so much yet theres probably just as much risk of us losing our life, yet we dont insure that in any way that benefits us, meaning we cant. My point is we cant hedge our life , yet we still go ,yet losing our life is much greater than losing the boat......im not sure ive expressed that very well.

I wonder how many of us would still cruise if there was no such thing as yacht insurance?

Sure you can, its called "life insurance".

Its relatively cheap and makes sense for many....like the typical 2.5 kids, minimal savings, and a big mortgage folks.