Charter vs Time Share Clauses Explained

Charter and time share clauses in yacht insurance are two different ways to cover your boat when it's used by someone else. A **charter clause** lets you rent your boat to others for a fee, and the insurance still covers it, but with some limits. A **time share clause** lets you split the boat’s use with another person or group, and the insurance covers it during your agreed time. The main difference is that a charter clause is for rental income, while a time share is for shared ownership or use without charging money.

What is a Charter Clause in Yacht Insurance?

A charter clause lets you rent your boat to others for a fee, and your insurance still covers it. But there are limits. For example, the insurance might only cover the boat if it's chartered to a licensed, experienced captain and crew. It might also limit how many hours the boat can be chartered each year or where it can be taken.

What is a Time Share Clause in Yacht Insurance?

A time share clause allows you to split the use of your boat with another person or group. The insurance covers the boat during your agreed time. This is different from a charter clause because you're not charging money — it's more like shared ownership. The insurance might require that all time share participants are listed on the policy and that the boat isn't used for commercial purposes.

Key Differences Between Charter and Time Share Clauses

Here are the main differences between the two clauses:

• Use of the boat: Charter is for rental income; time share is for shared use without charging money.
• Insurance coverage: Charter clauses often have stricter limits and may require additional coverage like Protection & Indemnity (P&I). Time share clauses are usually simpler but still require all users to be listed on the policy.
• Navigation limits: Charter clauses may restrict where the boat can be taken, especially if it's being used by strangers. Time share clauses might allow more flexibility, but still require the boat to stay within agreed limits.

Why Navigation Limits Matter with Charter and Time Share Clauses

Navigation limits are the areas where your boat is allowed to sail. These limits are important because they define where your insurance coverage applies. If your boat is damaged outside of these limits, your insurance might not pay for the repairs.

Charter Clauses and Navigation Limits

Charter clauses often have strict navigation limits. For example, your policy might only cover the boat if it's chartered within 50 nautical miles of the coast. If the boat is taken further out and damaged, the insurance might not cover the loss. This is because the risk of damage or loss increases the farther the boat is from shore.

Time Share Clauses and Navigation Limits

Time share clauses may allow more flexibility with navigation limits, but they still require the boat to stay within agreed-upon boundaries. For example, your policy might allow the boat to be used anywhere in the Mediterranean during your time share period, but not in the Caribbean. If the boat is damaged outside of these limits, the insurance might not cover it.

Agreed Value vs Actual Cash Value in Charter and Time Share Clauses

Agreed value and actual cash value (ACV) are two ways to determine how much your insurance will pay if your boat is damaged or lost. These terms are important to understand, especially when your boat is being used by others under a charter or time share clause.

Agreed Value

Agreed value is the amount you and your insurance company agree your boat is worth. If your boat is damaged or lost, the insurance will pay that agreed amount, regardless of the boat's current market value. This is common in yacht insurance because it avoids disputes over the boat's value after a loss.

Actual Cash Value (ACV)

Actual cash value is the current market value of your boat, minus depreciation. If your boat is damaged or lost, the insurance will pay the ACV, which is usually less than the agreed value. This can be a problem if your boat is worth more than it was when you bought it, or if it's damaged in a way that makes it hard to sell.

Scenarios: What Happens When a Claim Occurs?

Scenario 1: Damage Occurs While Chartering Outside Navigation Limits

You own a $500,000 yacht with a 5% named-storm deductible. You have a charter clause that allows the boat to be chartered within 50 nautical miles of the coast. One day, the boat is chartered to a group that takes it 100 nautical miles offshore. A storm hits, and the boat is damaged for $100,000.

Because the boat was chartered outside the navigation limits, the insurance does not cover the damage. You are responsible for the full $100,000 repair cost. The 5% named-storm deductible does not apply in this case because the loss is excluded due to the navigation limits violation.

Scenario 2: Time Share Damage Within Navigation Limits

You own a $400,000 yacht with a time share clause. The policy allows the boat to be used anywhere in the Mediterranean. You and your time share partner each use the boat for 6 months a year. During your time, the boat is damaged in a collision with a floating dock for $60,000. Your policy has a 10% deductible.

The insurance covers the damage because it occurred within the navigation limits. You are responsible for the deductible: 10% of $60,000 is $6,000. The insurance pays the remaining $54,000 for repairs.

Scenario 3: Time Share Damage Outside Navigation Limits

You own a $300,000 yacht with a time share clause that allows the boat to be used in the Caribbean. Your time share partner takes the boat to the Bahamas, which is outside the agreed navigation limits. The boat is damaged in a storm for $75,000. Your policy has a 5% named-storm deductible.

Because the boat was used outside the navigation limits, the insurance does not cover the damage. You are responsible for the full $75,000 repair cost. The 5% named-storm deductible does not apply in this case because the loss is excluded due to the navigation limits violation.

How to Choose the Right Clause for Your Boat

Choosing between a charter clause and a time share clause depends on how you plan to use your boat. If you want to rent it out for income, a charter clause is the way to go. If you're splitting use with another person or group, a time share clause is more appropriate.

Here are some questions to ask yourself:

• Will I be charging money for the use of my boat?
• Who will be using the boat, and are they listed on the policy?
• Where will the boat be used, and does that fit within the navigation limits?
• Do I need additional coverage like Protection & Indemnity (P&I) for commercial use?

Additional Coverage You Might Need

Depending on how you use your boat, you may need additional coverage beyond the standard policy. Here are some common types of coverage to consider:

• Protection & Indemnity (P&I): Covers third-party liability, such as damage to other boats or injuries to passengers. This is especially important if you're chartering your boat.
• Crew Liability: Covers injuries to crew members. This is important if you're using a captain or crew for charters or time shares.
• Salvage and Wreck Removal: Covers the cost of recovering your boat if it sinks or is damaged in a way that makes it hard to move.
• General Average: Covers shared losses when a boat is damaged and the crew or passengers have to make sacrifices to save the boat. This is more common in commercial or long-distance sailing.

What to Do If You're Laying Up Your Boat

If you're not using your boat for a while, you may need to lay it up. This means storing it in a dry place and not using it. Your insurance policy may have a lay-up warranty that requires you to follow certain steps to keep the boat in good condition. For example, you may need to drain the fuel tanks, disconnect the battery, and store the boat in a covered area.

If you don't follow the lay-up warranty and the boat is damaged, the insurance may not cover the loss. So it's important to read your policy carefully and follow the instructions.

Final Takeaway

Charter and time share clauses in yacht insurance are two different ways to cover your boat when it's used by others. A charter clause is for rental income and has stricter limits, while a time share clause is for shared use and is usually simpler. Both clauses require you to follow navigation limits and other policy conditions. Always read your policy carefully and make sure you understand what's covered and what's not. If you're unsure, ask your insurance provider for a clear explanation before you start using your boat in a new way.