A Comprehensive Guide: How to Buy and Insure Your Boat
Purchasing and insuring a vessel these days doesn’t have to be a hassle.
We’re living in some interesting economic times, confusing even. Inflation is through the roof. Interest rates are at 40-year highs, and a recession may or may not be in our rearview mirror. The good news is the economy already feels like it’s rebounding. But is now the right time to be in the market for a new or used boat? Boat prices are indeed very expensive. (They’ve never been cheap.) As well are all the costs associated with buying and owning a boat. (They’re expensive regardless.) So if you’re buying your first boat, or you’re a seasoned boater who’s going bigger, let this article guide you through the complicated, multi-party, contractual boat-buying experience. You’ll not only save yourself some aggravation, you’ll save cash too.
Consider Use
The first step is knowing which boat type best suits your needs. If you’ll use it to fish in the creeks and rivers, consider a skiff or a center console. Center consoles are versatile and easier to sell when it’s time to upgrade. If offshore game fish are calling, think about a large sportfisherman. However, some of the newer center consoles have the right size, horsepower, and rigging to get anglers to their grounds quicker than most sportfishermen. Ski boats are ideal if you’re into water sports. If you have small kids, ponder a cuddy cabin with a head and a heated and cooled cabin. Will you sail? Will you use it for entertaining around the lake? Do you enjoy coastal cruising? Whatever your lifestyle is, there’s likely a boat that will match it.
Remember to Budget
Selling price aside, there are several other costs to consider at time of sale. Sales tax is a biggie. My state, South Carolina, caps the sales tax at $500. On the other hand, Florida and New Jersey’s cap is $18,000 and $20,000, respectively, regardless of the boat’s price and size. Have a trade-in? It will likely lower the sales tax since the amount taxed is net of the trade-in value. Remember, dealers are notorious for low-balling. It might behoove you to sell it privately. To find the value of your used boat, visit nadaguides.com and bucvalu.com. Other at-time-of-sale costs include titling, registering, and personal property taxes. For amounts, check with your state’s boat registration agency.
Costs don’t end at the dealership. Storage is expensive. If you think you’ll store your boat at home, first check with your Homeowners Association (HOA). My HOA restricts boat parking in my driveway and at the curb. So I store my two boats, a Back Cove cabin cruiser and a Boston Whaler Dauntless, at marinas. Annually, I pay $14,400—$9,100 for the cabin cruiser (in-water slip) and $5,300 for the center console (dry-stacked).
Marinas are like breweries—everyone leaves happy. Launching my center console is blissfully simple: I open an app on my phone, select a launch time, and, if needed, request fuel, ice, and/or a washdown. Sure, trailering will save you money, but frayed nerves are costly too.
If you’re a newbie, you will use your boat constantly. Fuel costs are meaty even when gas prices are low and stable. Marina fuel runs $2 to $3 more than gas station fuel. Marinas in Charleston, South Carolina, average $6.00 for regular and $4.50 for diesel. A boat’s gas mileage is nothing like that of a car. I’m lucky if my Back Cove gets 2 miles per gallon while cruising.
Other costs to keep in mind are annual engine maintenance, haul-out fees, bottom cleaning, repairs, etc. A cost that doesn’t get much attention is depreciation, a non-cash expense. A new boat typically depreciates 10 to 20 percent in the first year.
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Seek Help
If you’re in the market for a new or used boat like a cabin cruiser, consider enlisting the help of a broker. “A buyer’s broker won’t cost the buyer anything, but the benefits are huge,” say Greg Williamson and Katie Johnson, the owners of Ashley Yachts in Charleston, South Carolina. The seller pays the commission, usually 10 percent, which is split between the listing and the selling broker. “A buyer’s agent has only the buyer’s best interests in mind. They will be their best advocate and resource for discovering their perfect boat.” Unfortunately, most brokers are unregulated. So the duo recommends finding one who is a Certified Professional Yacht Broker (CPYB) and is affiliated with the Yacht Brokers Association of America (YBBA).
Regardless of size, if you’re buying used, hire a local surveyor (namsglobal.org), who meticulously inspects a boat from stern to bow to determine its level of seaworthiness. They charge about $35 per foot, a cost that’ll pay dividends for years. Unlike a lawyer or an accountant, anyone can hang a shingle and call themselves a marine surveyor. So ask for references from fellow boaters. Look for surveyors who are certified by the National Association of Marine Surveyors (NAMS) and accredited with the Society of Accredited Marine Surveyors (SAMS).
The Finance of Things
Money isn’t cheap, and qualifying for a loan isn’t easy these days. So if you don’t have the extra cash lying around in your coffers to buy outright, consider a loan from a marine financing company like Sterling Associates or Trident Funding. They specialize in boat loans only and can usually offer better interest rates than your local bank. Leigh Ackerman, an independent representative for Sterling Associates in Fort Lauderdale, structures loans from $50,000 to tens of millions of dollars. Her most popular loan is the 20-year, seven-and-a-quarter percent fixed with 20 percent down. She says, “The bigger banks like Bank OZK and Truist offer rates in the seven-and-a-half to eight-and-a-half range.” On a $100,000 loan, just one percent saves you $6,300! So shop banks. Regardless of lender, these rates require a good credit score, 740 or higher. You’ll also need to provide two years’ worth of tax returns and a current bank statement.
Crunch the Numbers
When you’ve narrowed your search down to two boats, use the net present value method (NPV). NPV is a popular business tool used to evaluate investments. It’s preferred because it factors in the time value of money—the idea that the value of a dollar changes over time because it can be invested to earn interest.
To calculate a boat’s NPV, which is easy in Excel, net the cash outflows (purchase price if paying cash, loan amount if financing) against the present value of the cash inflows, e.g., the boat’s future resale value discounted to an amount equivalent to today’s price. The key to discounting a future amount is knowing the discount rate, or loan rate.
For example, you’re stuck between choosing a Boston Whaler 220 Dauntless and the Grady-White Fisherman 216. The Whaler and Fisherman list for $152,000 and $145,000, respectively. Regardless of the boat, you’re going to finance it and put down $30,000. Standard on the Fisherman is a Yamaha 250-hp outboard. The Whaler has a 200-hp outboard, but there’s an option to upgrade to the more fuel-efficient 250-hp Verado for $5,000. You like the extra power, plus the Dauntless’ salesperson believes it could save at least $100 annually in fuel costs.
Both salespeople are eager to sell. The Fisherman’s salesperson will knock off $1,000 on the 12-inch Garmin GPS/fishfinder valued at $3,000 and will take $1,000 off the $4,000 trailer. You’re keen on trailering because it affords you the ability to explore many different waterways. The Whaler folks can knock $1,000 off both the sticker price and the outboard upgrade, and offer a 20-year loan at seven-and-a-quarter percent. The Fisherman’s dealer uses one of the big banks that can offer a similar term, but at eight-and-a-half percent.
At loan’s end, you believe the Whaler and Fisherman’s resale values will be approximately $40,000 and $35,000, respectively, including the trailer.
To Insure or Not to Insure
I’ve saved the most important cost for last—insurance. Surprisingly, not every state requires boat insurance. South Carolina does not. Google your state and “boat insurance requirements” to see your state’s status. If you’ll be financing your boat or will store it at a marina, you’ll need insurance. A bank will request to be listed as a lien holder on the policy; a marina will request to be listed as an additional insured party. The marina may dictate the liability amount too.
“Here in Florida, insurance is expensive and it’s hard to get,” Ackerman says. “Just in the last two years, premiums have doubled. An annual premium two years ago was three thousand four hundred dollars. Now it’s like seven thousand dollars.” Even if you’re not required to have it, you should spend the money for a good policy. A good policy saved me from having to spend $17,000 to replace the generator on my cabin cruiser.
Avoid using homeowners’ insurance because it’s typically limited to liability. A good marine policy also includes property coverage, and losses due to windstorm, emergency towing and service, medical payments, uninsured boater, trailer, and personal property (fishing equipment). Select an agency that specializes in boat and yacht insurance, like CHUBB or BoatUS. The rates are typically lower because a marine specialist has access to numerous underwriters who understand the risks better; the result is more competitive and comprehensive coverage.
Get an “all risk” policy because it’s one of the broadest recreational marine policies on the market. It lists causes not covered in the event of a loss. If you do incur a loss and its cause isn’t listed, you’re covered. Staple exclusions, or causes that are typically listed include vermin damage, wear and tear, lack of maintenance, weathering, marine life, and insects. The number and type of exclusions vary among underwriters, so take the time to peruse the exclusion section to avoid surprises later.
In addition to all risk, know the terms “agreed value” and “actual cash value (ACV).” Both relate to property damage coverage and settlement amount. If your boat is new or it’s a big investment, consider the costlier agreed value coverage. If your boat is destroyed by fire, your settlement will be the agreed value (less deductible), which is shown on the Scheduled Vessel Endorsement page of the policy. With this coverage, depreciation typically doesn’t factor into the settlement. Depreciation, however, is a factor in the less expensive ACV coverage. If your trawler sank during Hurricane Ian, your settlement is limited to an amount equal to the boat’s fair market before it went down.
Buying a boat is a decision that shouldn’t be taken lightly. Dedicate the same amount of time to researching the boat you wish to purchase as you would when buying a house.
I can’t imagine life without my boats. It’s a wonderful, romantic lifestyle. Two of my absolute favorite things to do is a boating date night with my gorgeous wife to one of Charleston’s fine waterfront dining establishments, and boat my family overnight to one of the charming neighboring historical seaports.
-by David Kuczkir
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