What Is Boat Insurance?

Boat insurance is a type of property-casualty insurance policy designed to insure various watercraft. Similar to automobile insurance, an insurance policy is actually a package with coverage that can extend to cover boat repair or salvage costs, medical payments for passenger injury, and liability for property damage. Some policies include uninsured watercraft coverage, which can help pay for medical costs if the insured is injured by another party that is not insured.

Some policies provide additional coverage for a premium to cover costs such as salvaging a boat that has sunk or run aground, had fuel spills, or needed a hurricane haul-out. Other policies include a travel insurance provision to cover costs from delayed or canceled travel because of the boat.

In some cases, an insurance policy will require an additional premium or a separate deductible for certain causes of loss, such as hurricane damage, especially if the boat is operated or stored in a hurricane-prone area. While any boat can be insured, smaller vessels like a kayak, rowboat, or canoe are usually insured by an endorsement or rider attached to a homeowner's insurance policy. However, a homeowner's policy might offer limited coverage depending on the type of boat and the amount of coverage sought.

Standalone insurance policies for boat coverage are generally used for larger craft, including fishing boats, yachts, motorboats, speedboats, sailboats, etc., that are used in rivers, lakes and ponds, or the ocean. Boats tend to be expensive, so an insurance policy helps boat owners to protect their investment while also mitigating liability for property damage or personal injury. Both major insurance companies and smaller specialty firms offer insurance policies for boats, yet policy provisions vary widely. Boat owners thus need to read the fine print of any insurance policy to understand the costs for various types of coverage.

What Types of Boat Insurance Are Available?

What Is Boat Insurance?

When purchasing an insurance policy for your boat, consumers should understand the various types of coverage available. There are two main ways people pay for their boat insurance that differ based on how the boat is valued: "Agreed Value" policies and "Actual Cash Value" policies. The amount that boat owners receive for a loss occurs varies depending on which type of policy is chosen, as does the amount of any additional premium. In general, the more an insurance policy will pay in the event of a loss, then the higher the premium will cost up front.

The key factor in either type of policy is depreciation, or how much the value of the boat decreases over time. However, even if a boat's value drops lower than when it was first purchased, it can be quite costly for boat owners to replace the boat or even replace parts. Therefore, boat owners must weigh the cost of the insurance policy against how much money they would receive if the boat were lost or damaged. In addition, many policies have separate deductibles and different terms for certain types of losses (i.e., due to hurricanes). A less costly policy may be more appealing, especially for an older boat, but in the event that it is damaged or lost, that policy may not pay enough for the boat owner to replace it. When deciding on whether to obtain an insurance policy, consumers need to consider this factor, and others, before signing on the dotted line.

  • Agreed Value

  • The first type of insurance policy commonly purchased is an Agreed Value policy. With this type of policy, the boat owner and insurance company agree on the value of the boat in advance. If the boat is a complete loss, the insurance company will pay the agreed-upon value of the policy, even if the actual boat would have been worth less had it sold on the open market just prior to the loss. For example, if a boat is insured for $40,000 under an Agreed Value policy and then is lost, the policy will pay the full $40,000 no matter what the actual value of the boat is at the time.

    The same rule applies in the event of a partial loss. If a boat is damaged or any equipment is lost, an Agreed Value insurance policy will pay for the replacement cost of the part(s) or equipment, even if the damaged property is several years old at that time. So, for example, if a boat's electrical equipment is five years old and worth only $10,000, but the policy insures it at an agreed value of $20,000, then the policy holder would receive the latter amount.

    The biggest benefit of an Agreed Value policy is that boat owners know that they will be able to pay the full cost of replacing or repairing the boat if there is a loss. However, because an Agreed Value policy provides such a high level of coverage, it tends to cost more than an Actual Cash Value policy. Nevertheless, if a boat is new or extremely expensive, then boat owners might be willing to pay extra to have the peace of mind afforded by an Agreed Value policy.

    Despite the breadth of coverage, boat owners should still read the fine print on an Agreed Value policy. There may be additional limits on other costs, such as Salvage Assistance or Hurricane Haul-out, which can make the policy less valuable if there is a loss. Just because a policy is an Agreed Value policy does not mean it always provides the broadest coverage. In some cases, the Agreed Value policy may have separate premiums or deductibles for the specific causes of loss noted above.

  • Actual Cash Value

  • The second type of insurance is an Actual Cash Value policy. With this type of policy, the depreciation of the boat, its equipment, and its contents is evaluated before any claim is paid. Unlike the Agreed Value policy, this policy considers the actual value of the boat and other property at the time of the loss instead of replacement or repair costs. For example, if a boat originally cost $40,000, but a few years later, is valued at only $25,000, this insurance policy would pay the latter amount if there was a total loss-even though the boat owner might actually require $40,000 to replace the boat.

    Payout limits also come into play with a partial loss, including damage to the boat, its equipment, or other contents. The Actual Cash Value policy would pay a smaller amount than would cover full replacement because of depreciation. If the boat's electrical equipment would cost $20,000 to replace but is now worth $10,000, then this policy would pay the smaller amount if there was a claim.

    Actual Cash Value insurance policies generally cost less than Agreed Value policies because they provide a more limited amount of insurance. Boat owners with older or smaller vessels may decide to buy this kind of policy if they know they could handle the additional cost of replacing or repairing the boat themselves. However, all boat owners should compare the two types of policies, making sure they truly understand the payout amounts for a full or partial loss so they can weigh any future financial impact.

    Similar to an Agreed Value policy, an Actual Cash Value policy may have additional premiums or deductibles related to certain causes of loss, such as hurricanes.Also, there may be other provisions, such as Salvage Assistance or Hurricane Haul-out, which can make it more or less valuable to the boat owner. Check your policy carefully, as not all boat insurance is created equal.

Boat Insurance Directory
Boat Insurance Directory

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