The Boat Insurance Mystery- Unraveled!
For some, boating’s a pastime; for others, a way of life. No matter why you boat, everyone knows one thing- it’s EXPENSIVE! Being prepared and educated prior to a loss can help save a lot of aggravation as well as your investment. Many people found this out the hard way after Hurricane Sandy devastated their personal belongings, and their insurance company pulled out a magnifying glass to discuss their policies details and fine print. Needless to say, thousands of boats were left stranded because they were not properly insured and the owners could not afford to repair of even salvage them.
Boat insurance: do you HAVE to have it? It depends on the state. Should you have it? Do you want your boat to float? I think we can agree the answer to both of these questions is YES! But why, what kind, and how much? We are here to help decipher the nuts and bolts of your insurance contract and help you choose the best insurance to suit your specific needs.
Let’s start with the basic, yet often confusing terms in a policy:
- Boat- For most insurance companies, a boat is classified as 26’ and under
- Yacht- For most insurance companies, a vessel 27’ and larger
- Boat Liability Insurance- The maximum amount of money your policy could pay to help cover the expenses of injured third parties outside of immediate family, as well as property damage other than your own. Policy limits are generally stated in an XX/XX/XX format. For example, 20/40/20 means $20,000 is the max payment for any one injured person the policy holder is liable for; $40,000 is the max payment for all people injured in any one occurrence; and $20,000 is the max payment for property damaged as a result of an accident or event.
- Actual Cash Value- The cost to replace damaged property, less the deductible, minus depreciation and wear and tear. For example, if your 2001 Bayliner is damaged beyond repair and had a value of $5000 before the accident, you would most likely receive $5000 (less deductible), and not the $15,000 it would cost to replace the boat.
- Agreed Value- A predetermined vessel value. Should your boat be damaged beyond repair, you would receive the entire agreed value of the boat (less deductible), despite the boat’s age or wear and tear.
- Replacement Cost- The cost to replace damaged parts (less deductible). In the case of a total loss, a replacement cost provision would replace your boat with a new boat. Generally this option is typically limited to the first year of ownership and then would switch to Agreed Value or Actual Cost Value.
- All Risk Policy- This is the “cause of loss” provision which most policies are written. This means all damaged to the boat is included (after the deductible is applied), unless specifically mentioned in the exclusions.
- Navigational Limits- These are specific limits as to where you can use your boat. Be sure to discuss your this information with your agent or underwriter as some policies have detailed navigational boundaries and may only provide coverage in your home state or within limited coastal waters.
- Lay-Up Discount- For those who live in winter climates where your boat will not be used for a portion of the year, some policies offer discounts if your boat is winterized and stored.
- Deductible- Portion of a loss the policy holder is responsible for prior to payment from the insurance company (where applicable). This could be a flat amount or in the form of a percentage of the policy.
Now for the really confusing part- What do I actually need and where should I start?
To begin, insurance companies generally define boat insurance as Marine Insurance or Hull Insurance. As one insurance company explains, it is the “accidental, direct physical loss or damage to the boat and equipment as well as salvage charges.” Equipment could include sails, machinery, electronics, furniture, dinghies, outboard motors, and other equipment normally considered necessary for the use of a vessel.
In general, most boat insurance policies are “All Risk” policies which means all damage to the boat is included except for specifically excluded perils named within the policy. These exclusions may include general wear and tear, weathering, mold, blistering, design defects, and animal and marine life damage. It may or may not include machinery damage exclusions, depending on the specific policy. There are a few variables that will also affect your policy, such as horsepower and type of engine, intended use, planned storage, and expected operators.
If you are new to owning a boat, there are a few questions you’ll want to ask your insurance agent or underwriter:
- Is this an agreed value or ACV policy (and make sure you understand the difference)?
- What are the deductibles and how will they apply at the time of a loss?
- What are the navigational boundaries of the policy?
- What if someone else drives my boat and has an accident?
- What is covered while trailering the boat?
- Are there any medical payments?
- Is boat insurance mandatory in my state; if not, would it be wise to purchase coverage for uninsured/underinsured boaters?
You will also want to find out the company’s coverage for the following:
- Personal effects and unattached equipment coverage for items such as fishing or diving gear
- Fuel/environmental damage and salvage/wreckage removal
- On-water assistance
- Uninsured/underinsured coverage for bodily injury
- Specialized coverage for highly valued items on the boat
- Consequential damage (for wear and tear, rather than an accident)
There are a few things you can do to help keep the cost of insurance down. Many insurance companies offer discounts for boating safety classes. These classes are offered in most areas by The US Coast Guard Auxiliary and The National Association of State Boating Law Administers, and are usually free. You may also qualify for a discount by having your boat inspected by the USCG Auxiliary, which is also a free service. Some insurance companies also offer discounts if your boat is only used in freshwater, or you bundle your boat, auto, and home insurance with the same company.
Ask your boating friends, boat dealers, and local marine financiers who they recommend and if they have had any personal experience dealing with claims. A personal reference is a great way to ensure you will consider aspects that effect your marine insurance policy for your specific needs. Finally, always consult with an insurance professional who is familiar with marine risks for that area to make sure the exposure and your asset is properly insured.
And Boat ON Friends…