What it means
Owning a boat creates risks that a car or house policy was never built for. The vessel can hit another boat, run aground, sink, burn or be stolen, and the owner can be legally responsible if a passenger or swimmer is injured.
A watercraft policy bundles the main protections into one contract. The usual parts of cover are physical damage to the vessel and its equipment, liability to others, medical payments for people on board, and protection against an uninsured boater.
Many policies also pay for towing, salvage (the cost of recovering a vessel in distress) and wreck removal. Optional extras might include trailer cover, personal effects and racing or charter use.
How the vessel is valued makes a big difference. Agreed value means the insurer and owner settle on a fixed figure at the start, and that amount is paid on a total loss.
Actual cash value means the payment is the replacement cost less depreciation (the fall in value from age and wear), so older boats receive less. Premiums depend on the type and value of the vessel, engine power, where and how it is used, the owner's experience and the claims record.
A boat kept in a marina in a storm-prone region costs more to insure than a small boat stored on land. Many policies limit cover to a named navigational area and exclude use outside it.
Commercial users, such as charter operators and marine businesses, need specialist marine policies rather than a standard private one. Using a private policy for business activity can lead to a declined claim.
The nuance for finance teams is that watercraft cover, hull insurance and marine liability sit under the broader marine insurance family and the correct form depends on the use.
In practice
Real-world examples.
Example
A family buys a $60,000 motor boat for weekend trips on a lake. They take out a watercraft policy covering damage, liability of $300,000 and towing. After a collision with a dock, the insurer pays for repairs less the deductible.
Example
A fishing guide uses a small boat to take paying customers out on a river. His private watercraft policy excludes commercial use, so he switches to a commercial marine policy before the season starts. The new premium is higher but the cover matches the way he earns money.
Example
A retired couple owns a jet ski that is stolen from its trailer. Their policy covers theft and pays the agreed value of $9,000 less the deductible. They learn that their home policy would have paid only a small fraction of that amount.
Formula
Calculation
Payout on a total loss = Insured value - Deductible
For an actual cash value policy, Insured value = Replacement cost - Depreciation
Suppose a motor boat costs $60,000 to replace and is judged to have lost 25% of its value through age and wear. Depreciation = 60,000 x 0.25 = $15,000, so the actual cash value is 60,000 - 15,000 = $45,000. After a $1,000 deductible, the payout on a total loss is 45,000 - 1,000 = $44,000.Case study
Seen in the real world.
Lakeside Charters is an illustrative, fictional small business that rents out pleasure boats to holidaymakers. The owner insured the fleet of four boats using a private watercraft policy because the premium looked cheaper.
When one boat hit a submerged log with customers aboard, the insurer reviewed the policy and noted that rental use was not covered. The claim for repairs of $28,000 and a passenger injury was refused.
In this illustrative story the owner had to pay the costs from the business account and later moved to a commercial marine policy at a higher premium. The lesson is that the cheapest policy is not the right one if it does not match how the vessel is used.
Watch out
Common mistakes.
- Assuming a home insurance policy fully covers a boat, when most home policies cover only small craft and with low limits.
- Insuring a boat for the price paid and forgetting that actual cash value policies deduct depreciation, which can leave a gap on a total loss.
- Using a private policy for business use such as charters or fishing trips, which can make a claim invalid.
Questions
People also ask.
What is the difference between agreed value and actual cash value?
Agreed value is a fixed amount settled at the start and paid on a total loss, while actual cash value pays the replacement cost less depreciation at the time of loss.
Does the policy cover liability to passengers?
Most policies include liability cover for injury to others and damage to their property, with a limit that should be chosen to match the owner's wealth and use of the boat.
Is cover valid anywhere in the world?
Not usually, because policies state a navigational area, and sailing outside it can reduce or remove protection.
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