Boat and Watercraft Insurance: The Basics

Do you own a boat? Are you shopping around for one? If so, you are likely to need insurance.

This article will go over the basics of boat insurance, focusing on small pleasure boats (ballpark 40 feet or fewer in length). Owners of larger or commercial vessels will have insurance needs that are probably greater than what is discussed here.

Why Do I Need Boat Insurance?

You need boat insurance for the same reasons that you need homeowner’s and car insurance. You need it for liability issues—a passenger on your boat, or on another boat that you collide with, could be seriously injured or die and you could be sued (learn more about the process in Insurance and Lawsuits: What Happens When You Are Sued). You need it to protect for losses resulting from property damage, theft, or vandalism. You need it for medical payments in case you or a passenger is injured while on board.

Will Homeowner’s or Renter’s Insurance Cover Me?

In some cases, homeowner’s or renter’s insurance policies might provide some limited coverage for boats (if you are renter, see these 6 Reasons You Need Renter's Insurance). This coverage might be sufficient for very small vessels like rowboats, canoes, kayaks, and rafts. But when it comes to larger boats—and "larger" can be as small as a 14-foot sailboat—you will be far better served by a separate, boat-specific policy.

Many insurance companies will also allow you to "bundle" policies. This means that if you have, for example, a homeowner’s policy and then add a boat policy with the same insurer, they will give you a 10% or 15% reduction for the premiums on it.

Agreed Versus Market Value

Most insurers offer two types of boat insurance: agreed value and market value (sometimes referred to as actual cash value).

With an agreed value policy, the value of the boat is agreed upon at the inception of the policy. At any time after that, if the boat is damaged enough to become a total loss, you get the full agreed-upon value.

With a market value policy, the insurer will take depreciation into account. If the boat is totaled, say, five years after you bought it, you will not get as much as you paid for it. While they offer less coverage, market value policies have the benefit of being less expensive.

A common practice among boat owners is to take out an agreed value policy if the boat is new or not too many years old, as depreciation each year is high for such boats. As the boat ages, and the rate of depreciation slows, a market value policy makes much more sense.

All Risk Versus Named Perils

All risk policies are broader than named perils policies. Basically, an all risk policy covers everything unless it is specifically excluded by the language of the policy. A named perils policy, on the other hand, covers only what is specifically provided for by the policy language.

Price both, but know that while they might cost a bit more, all risk policies are generally recommended.

Where Is My Boat Covered?

Most policies provide coverage either for inland waters, or both inland and coastal waters. Know your policy so you can be sure that you're covered for where you are going! If you are planning to go offshore, read your policy and talk to your agent or broker to ensure you are covered (don't have one? See What Is an Insurance Broker? to find out what these insurance professionals can do for you). Coverage for one-time trips—a sail to the Caribbean or Hawaii, for example—can be arranged even if your policy does not usually provide such coverage. Just be sure to talk to your agent or broker well in advance of the trip to make the proper arrangements.

Extended Lay-ups

If you live in an area where the winter weather makes boating impossible, most insurers will reduce your premiums for specified, agreed-upon months of non-use (the same may apply for your motorcycle. Find out more in Best Insurance Options for Storing Your Motorcycle for the Winter). But remember, taking advantage of the reduction will likely mean that you will not be insured if you decided to take the boat out on an unusually warm January day.

If you live in cold areas, be aware that not every insurer offer coverage for damage caused by ice or freezing. If you live in an area where ice or freezing damage is a real risk, find out what your coverage options are and get the protection you need.

Out of the Water?

If your boat is small enough to trailer and you are involved in an accident while transporting it, are you covered for damage caused by the boat if, for example, it breaks free from the trailer hitch and hits another car? You most likely are, but by your auto policy, not your boat policy.

And what if you park the boat and trailer on your property and it is vandalized, or equipment is stolen off of it? This will most likely be covered as well, but, again, not by your boat policy. In this case, it's your your homeowner’s or renter’s policy that protects you.

If you have a trailerable boat, read your policies carefully and make sure that you have coverage for all contingencies.

A Few Miscellaneous Items

Some insurers offer discounts if you take a boating safety class. Your agent or broker should be able to tell you what classes in your area will qualify.

Ask your agent or broker about safety devices that might qualify you for a discount on your premiums—and that might be a good idea to have on your boat even if they don't.

When you shop for insurance, be specific. There are many many types of boats, and policies are often structured for specific types, so make sure you get the right type of insurance.

Unlike with cars, most states do not require boat owners to have insurance. Discuss uninsured and underinsured coverage with your agent or broker, especially since it will likely be only a very small addition to your premiums.

What about towing and salvage coverage? Some insurers do not provide this but it can be worth having.

As always, read the policy before you buy and discuss the details and your coverage needs with a qualified agent or broker (for advice on finding one, see 5 Questions to Ask Before Choosing a Insurance Agent).