Boat Insurance: What You Need To Know
Date: 3/29/04
Author: Rick Herscowitz, California Independent Agent/Broker
I would like to begin by stating that I am an insurance agent/broker licensed only in the state of California. I am not soliciting for business or making any recommendations as to a particular company or product. This article is for informational purposes only. Laws, boating regulations and insurance policies differ from state to state and company to company. I recommend contacting a reputable carrier and agent who is familiar with the laws, regulations and carriers of the area in which you reside.
It's important to note that insurance is not a maintenance policy and will not cover wear and tear, deterioration, etc. Mold, wet and dry rot, and vermin are also excluded from most policies. Therefore, floorboards, upholstery, canvas, foam packing, etc. will not be covered in most cases. Many companies will offer mechanical coverage on new boats for an additional premium.
When shopping for marine insurance, one needs to understand policy types, coverage limits and limitations. Never, never, never insure your boat on your homeowner's policy. Always buy a freestanding boat policy regardless of cost. Then, if you should you experience a liability or medical loss related to the boat, it won't affect your home. A boat is just a toy, but we all need a home. If the boat premium goes up or the policy is canceled after a loss, so be it. Either pay it or sell the boat. Don't risk the loss of your homeowner's insurance policy.
Policy Types
Agreed Value or Stated Value
With this type of policy, both the insured and the insurance carrier state and agree on the value of the hull and attached hardware. Generally, value is determined by dealer purchase agreement on new boats and by NADA Guide values or dealer purchase agreements for used boats.
What is important with this type of policy is to establish and document value prior to loss and pay the necessary premiums. The hull and all attached hardware have a single coverage limit. Should you add towers, bimini tops, high-end stereo, ballast system or other accessories that are permanently affixed, it is important to make certain your hull coverage includes the value of those items.
Actual Cash Value
With this type of policy, the insurance company pays what the boat is worth at the time of the loss. This means depreciation is a factor. The company has the option of replacing it with "like kind and quality" or paying you the cash equivalent. This means that if they locate a replacement on the Internet, they have the option of buying it for you or offering you an equal dollar amount.
Of the two, I prefer an agreed value or stated value policy because, in the event of a loss, there is no arguing about the value of the loss.
Exclusions and Deductibles
It is important to read the policy carefully to ensure that you have all the coverages for which you are paying. Many companies exclude certain damages such as damage from underwater objects or damage as a result of freezing. Therefore, you want to get an "all risk" policy with the fewest exclusions possible.
Deductibles are usually 2% of the hull value, but can be raised to reduce the premium. A good marine policy has the trailer listed separately with its own deductible, which can be as low as $100. Again, confirm that the coverage is sufficient enough to replace any loss with like kind and quality. This is especially true if you have a high-end trailer.
Liability Types
Liability covers property damage and personal injury to everyone except the named insured and immediate family members. It defends the named insured and pays on behalf only if named insured is found liable.
Split Limit
Split limit liability coverage follows the type of coverage you usually see with automobile liability insurance. Few insurers fully understand this type of liability.
For example, if your liability limits are 100/300/100, that means you have $100,000 in coverage per person, $300,000 in coverage per occurrence and $100,000 in coverage for property damage. So if you have five passengers in the boat, you only have $300,000 in coverage to split between those five passengers. That's only $60,000 each. So the more passengers on board, the lower the coverage per person.
Protection and Indemnity
P&I is the most common and usually the cheapest type of liability coverage available. P&I coverage provides a single dollar limit for both liability and property damage combined, which the carrier will pay on your behalf. It includes defense costs as well. Therefore, it doesn't matter how many passengers are involved. The coverage limit can apply to one passenger or 10.
Towing Liability
Towing liability covers anything being pulled or towed behind a moving vessel. For any policy, towing liability is a must have. Be sure to confirm that this coverage is included in your policy. Never assume that it's included in the policy because many companies exclude this coverage or charge more to include it.
Emergency Services
Emergency services coverage is included on many policies. This covers recovery of sunken vessels or prevention of loss. It also covers towing on the water and/or on the trailer. Make sure this coverage allows for towing service if on the trailer. This is important in the event of an auto accident or axle or bearing problems.
Pollution Liability
Pollution liability covers clean up of fuel or oil in the event of sudden and accidental discharge. This is becoming more important as many governmental agencies will bill for clean up services after an accident.
Umbrellas
An umbrella policy provides excess liability coverage. It will pay, on your behalf, for an occurrence for which you are deemed liable after all underlying policy limits are exhausted. Every boat owner should consider one. If you can afford a "toy," then you probably have assets that need protection, such as a home, retirement plans, future inheritances, etc. Umbrella policies are inexpensive, usually around $150-$400 per million dollars of coverage.
Medical Coverage
Medical coverage pays for injuries to any person injured while on or in the insured vessel regardless of fault or cause. The higher the coverage, the better. I would recommend no less than $5,000.
Navigation Limits
Read the policy carefully and make sure you understand the navigation limits prior to signing it. Some common terms are brown water (less than five miles from shore and inland) and blue water (over five miles from land). Use of these terms is usually within restrictions that are generally for yacht and sport fishing boats that travel into international (non-U.S.) waters. Most trailer boat navigation limits are defined as "inland lakes and waterways."
Watch for state and area limitations as well. These are restrictions on where the vessel is covered. This is important if, for example, you live in California, but take your boat to Lake Powell in Arizona/Utah.
Lay Up Period
The lay up period is the period of time in which you will lay the vessel up and not use it. This is usually winter. Many companies offer discounts if you accept a lay up period, but you need to be careful about knowing your lay up period time frame and make sure you don't use the boat during that time. If you do, you may be without coverage.
Commercial Use
A personal boat insurance policy is exactly that, personal use. You cannot use it for business promotion, events, instruction or charter whether or not a fee is charged. If you deduct it from your taxes as a business item, then you generally need a commercial policy.
Operators
Most policies name the operators of the vessel. However, the vessel is what is insured for liability, regardless of who is operating it. Companies just want driver names and experience for rating purposes. This is where the insurance company uses material information about the operator to determine a premium.
Endorsements and Certificate Holders
Many people belong to private lakes and ski clubs and, therefore, are required to name the club, lake authority, sponsor or other entity as an additional insured. If this is something you need or something you foresee needing in the future, ask if it is possible to name an additional insured. Be sure to ask what the additional premium would be.
Ownership
If you own an interest in a boat, be sure your name is on the title. You cannot insure or collect your share in the event of a loss if you are not a registered owner. You can be sued, however, as an unnamed or silent owner and have no defense coverage under the policy because you're not listed.
There are many reputable programs available to boaters, so ask questions and get multiple quotes to compare types, limits and premiums. I hope this article helps clear the muddy insurance waters. Should you have any questions or comments, feel free to email me at rickh@rcip.com.
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