Ship Insurance Guide for Buyers: How to Protect Your Investment

My name is Davide Ramponi, I am 20 years old and currently training as a shipping agent in Hamburg. On my blog, I take you with me on my journey into the exciting world of shipping, sharing my knowledge, experiences, and progress in the field of Sale and Purchase (S&P) – the business of trading ships.

When buying a ship, most buyers focus on technical inspections, contract negotiations, and financing options. However, one crucial aspect is often overlooked: insurance. A ship represents a significant financial investment, and without the right insurance coverage, buyers can face major risks—ranging from accidental damage to liability claims that could turn a profitable deal into a financial disaster.

In this article, I’ll break down the key types of ship insurance in the S&P market, explain contractual insurance requirements, provide tips on choosing the right insurer, and explore real-life cases of insurance claims and their impact.

The Two Most Important Types of Ship Insurance: H&M and P&I

When buying a ship, the two main types of insurance to consider are:

Hull & Machinery (H&M) Insurance

• Covers physical damage to the vessel.

• Protects against risks like collisions, grounding, fire, machinery breakdown, and extreme weather damage.

• Policies often include a deductible, meaning buyers need to pay a portion of the repair costs before insurance kicks in.

• Example: A bulk carrier suffers hull damage after hitting an underwater obstacle. The H&M insurance covers the repair costs, saving the owner millions.

Protection & Indemnity (P&I) Insurance

• Covers third-party liabilities—this includes crew injuries, pollution claims, cargo damage, and collisions.

• Offered by P&I Clubs, which are mutual insurance associations where members share risks.

• Essential for owners operating internationally, as regulations (e.g., MARPOL, SOLAS) require P&I coverage.

• Example: An oil tanker spills cargo due to a mechanical failure. The P&I insurance covers cleanup costs, legal fees, and compensation for affected parties.

Both H&M and P&I insurance work together to fully protect a vessel—without them, a single incident could result in devastating financial losses.

Insurance Requirements in Sales Contracts

When purchasing a ship, insurance plays a crucial role in the sale and purchase (S&P) agreement. Some key considerations include:

Who is responsible for insurance during the transaction?

• Typically, the seller insures the vessel until the official handover (delivery date).

• From the moment of delivery, the buyer must have their own insurance in place.

Does the ship come with existing insurance policies?

• Some vessels are sold with pre-existing insurance, while others require a new policy from the buyer.

What happens if the ship is damaged before delivery?

• Contracts usually include a "risk transfer clause" that states when responsibility for damages shifts from the seller to the buyer.

• If damage occurs before the transfer, the seller’s insurance covers it; if after, it’s the buyer’s responsibility.

🔹 Tip: Always review the insurance clauses in your S&P contract carefully and ensure a smooth transition between seller and buyer coverage.

How to Choose the Right Ship Insurer: Key Factors for Buyers

With so many insurance providers and P&I Clubs available, choosing the right one can be overwhelming. Here are some key criteria buyers should consider:

✅ Financial Strength

• Select an insurer with strong financial backing to ensure claims are paid quickly and in full.

• Check credit ratings (e.g., AM Best, S&P) and the insurer’s claims history.

✅ Experience in the Maritime Industry

• Look for insurers who specialize in shipping and understand industry-specific risks.

• P&I Clubs with global coverage and strong legal expertise are often the best choice.

✅ Coverage Terms & Exclusions

• Carefully read the policy wording—some insurers exclude coverage for:

  • Certain types of cargo operations.

  • War risks and piracy (may require a separate policy).

• Damage caused by crew negligence.

✅ Premium Costs vs. Coverage Scope

• The cheapest insurance is not always the best—low premiums often come with high deductible or limited coverage.

• Tip: Balance cost with comprehensive protection to avoid surprises later.

Common Insurance Problems & How to Solve Them

Even with a good insurance policy, buyers can encounter problems when filing claims. Here are some of the most common issues—and how to avoid them:

🚩 Claim Rejections Due to Technicalities

- Insurers may deny claims if the ship wasn’t maintained properly.

- Solution: Keep detailed maintenance records and ensure compliance with classification requirements.

🚩 Delays in Payouts

- Some insurers take months to process claims, delaying repairs or operations.

- Solution: Choose a reputable insurer with a strong track record for fast claims handling.

🚩 Disputes Over Liability

- In some accidents (e.g., collisions), insurers argue who should pay.

- Solution: Work with maritime lawyers to negotiate fair settlements.

Case Studies: Real-Life Insurance Claims & Their Impact

📌 Case Study 1: The Underinsured Cargo Vessel

A shipping company purchased a second-hand container ship but opted for minimal insurance coverage to reduce costs. When the ship suffered a serious fire in the engine room, the insurance payout covered only half of the repair costs—forcing the company into financial trouble.

🔹 Lesson: Cutting insurance costs can backfire—always ensure full coverage for major risks.

📌 Case Study 2: P&I Club Saves a Tanker Operator from Bankruptcy

A crude oil tanker collided with a fishing boat, leading to oil spill liabilities of $50 million. The shipowner’s P&I Club stepped in, covering legal fees, cleanup costs, and compensation claims—saving the company from financial collapse.

🔹 Lesson: P&I insurance is essential for vessels operating in international waters.

Conclusion: Don’t Overlook Insurance When Buying a Ship

Ship insurance is not just a legal requirement—it’s a critical financial safeguard in the ship sale and purchase market. From H&M and P&I insurance to choosing the right provider and avoiding common pitfalls, buyers must carefully plan their insurance strategy.

💡 Key takeaways:

✅ Understand the two main insurance types (H&M & P&I).

✅ Ensure smooth insurance transition in your S&P contract.

✅ Select a reliable insurer with strong maritime expertise.

✅ Learn from real-life claims to avoid costly mistakes.

What are your experiences with ship insurance? Have you ever encountered an insurance dispute? Share your thoughts in the comments—I look forward to your insights! 🚢💬