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Keep yourself afloat by insuring your boat

Ah, summer. It's the time of year when the non-landlubbers among us pine for the open seas. For them, few things compare to a day on the water.

Boating is an expensive hobby; even simple canoes can be pricey. And depending on what type of vessel you've got, there are some big risks involved. That's where insurance comes into play.

Depending on what type of vessel you've got, there are some big risks involved.

Although most of us groan when we think about the extra cost of an insurance policy, the dollars you spend covering you and your boat may go a long way to helping you enjoy yourself. Besides, some marinas and yacht clubs won't let you dock your boat unless you've got insurance on it.

Homeowners insurance policies usually include coverage for watercraft, but the coverage is often very limited. Typically, a homeowners insurance policy will pay up to $1,500 if something happens to your boat while it's at your house. The policy may even offer some liability coverage for you while you use your boat, but it's less than ideal.

The insurance industry generally places "watercraft" into three categories:

  • Boats: Under 25 feet, 11 inches in length.
  • Yachts: Generally 26 feet or greater in length.
  • Personal watercraft: Jet skis, wave runners, and other personal watercraft.

All three types of vessels require different insurance coverage. As with many other types of insurance, policies vary quite a bit from company to company. If you're in the market for boat, yacht, or personal watercraft insurance, comparing different companies' policies can be tricky. Read the policy carefully.

Boat insurance

Most of the vessels that fall under the definition of "boat" are smaller powerboats and sailboats but would also include rowboats, rafts, and just about anything that floats, as long as it's under 25 feet, 6 inches. Boat insurance typically covers physical damage and liability.

Staying safe on the water:

Boating safety tips

  • Make sure everyone wears a life jacket.

  • Take an instruction course before operating a boat.

  • Never consume alcohol while operating a boat.

  • More isn't always merrier: Don't overload your boat with passengers.

  • Know the local boating rules.

  • Be especially careful when near swimmers and water skiers.

  • Make sure the boat has enough lighting at night.

  • Be sure to stock your boat with safety equipment, including a fire extinguisher, horn, ship-to-shore communications, and extra life jackets.

Source - Michigan Association
of Insurance Agents

The physical damage coverage pays to repair or replace your boat if it's damaged or destroyed by fire, theft, lightning, vandalism, or windstorm. (Unlike homeowners insurance in many coastal areas, boat and yacht insurance covers damage from hurricanes and tornadoes.) Covered items include the boat itself, outboard motors, the boat's trailer, and personal property kept aboard the boat. However, your personal effects — things that aren't part of the normal operation of your boat — are not covered. Some companies offer separate coverage (at an added cost) for fishing equipment, cell phones, and computers that you use aboard the boat.

Liability coverage protects you if you're found responsible for damage to property or injury to someone other than you or a family member. So if you hit another boat or a guest is hurt aboard your boat, you'd be covered. When it comes to boat insurance, liability coverage is often offered in $100,000 increments, up to $1 million. In our litigious society, it pays to have this coverage.

Yacht insurance

Sport-fishing boats, larger sailboats, and cruisers fall into the category of yachts. Much like boat insurance, yacht insurance offers two main types of coverage: property damage and liability. However, with yacht insurance, these are called hull coverage and property and indemnity coverage.

Hull coverage pays to repair your yacht if fire, theft, windstorm, lightning, or vandalism damages it. Basically, it covers the entire yacht, including sails, furniture, outboard motors, and machinery, anything used to operate or maintain the yacht. Some dinghies and trailers are covered under separate policy endorsements.

Protection and indemnity coverage pays if you're found liable for damage to property or injury to someone other than yourself or a family member. As with boat liability insurance, it's usually offered in $100,000 increments, but is also available at limits of more than $1 million.

Yacht owners can also buy what's known as a hurricane protection endorsement. That pays to haul your yacht out of the water if a hurricane watch or warning is issued. It also pays to put the ship back in after the hurricane has passed. The coverage would also pay the costs of hiring a professional to get your yacht to a safe harbor because of an impending hurricane. One big difference between yacht and boat insurance is that yacht insurance often comes with several "warranties."

A navigational warranty restricts the operation of your yacht to a specific area. That means that your coverage only applies as long as you use the yacht in that region, which could be as large as the entire East coast or West coast, or as small as Chesapeake Bay.

Yacht owners can also buy what's known as a hurricane protection endorsement.

The navigational warranty is used more as a rating factor, according to insurance sources. Companies will have different rates depending on which area you use. For example, theft and bad weather are big problems in Florida, so insurance will likely be more expensive. If you plan to take your yacht outside your navigational area, most companies offer what's known as a trip endorsement to expand your coverage.

Many yacht policies also include a lay-up warranty, which requires the ship to be out of commission for a specific period of time. In New England, for example, using your yacht in January isn't practical. This warranty also allows you to get lower premiums, since the ship won't be in use year-round.

Personal watercraft insurance

Getting insurance coverage for your jet ski can be more difficult. Many insurance companies won't cover these popular items unless they're part of a larger policy. Other insurers, such as Progressive, specialize in personal watercraft coverage.

The majority
of all boating accidents involve personal watercraft.

One reason coverage can be difficult to obtain is the higher risks involved with jet skis. The majority of all boating accidents involve personal watercraft. Operator inexperience is to blame in almost all personal watercraft accidents.

If you own a personal watercraft, you'd be wise to purchase insurance coverage that includes bodily injury, property damage, liability, and theft.

Typical insurance for personal watercraft covers:

  • bodily injury
  • property damage
  • guest passenger liability
  • medical payments
  • theft

Liability limits start at $15,000 and can be increased to $300,000. Typical policies include deductibles of $250 for property damage, $500 for theft and $1,000 for medical payments. Additional coverage can also be purchased for trailers and other accessories. You should talk to your insurance representative about the type of coverage that would best suit your needs.

Similarities, differences abound

Although the policies are different, boat and yacht insurance policies share many similarities. As we've already said, it's important to know what your policy does and doesn't cover, so read the policy carefully.

Yachts and boats less than 15 years old are typically insured on an "agreed value" basis. That means the insurer will pay you the full amount for which you're insured in case of a total loss. There's no depreciation deduction.

Vessels, like cars, lose value as they age. Insurance companies usually re-evaluate the market value of a boat every five years. That way, the coverage more accurately reflects your needs.

On the other hand, boats more than 15 years old are covered on an actual cash value basis. In that case, the insurance company would pay you what the boat is worth, minus depreciation, in case of a total loss. No matter the age of the vessel, insurance companies will only pay the actual cash value of some items, such as sails, covers, or outboard motors.

If you suffer a partial loss, the old, damaged item or items are usually replaced with new ones. Insurers sometimes refer to this as "new for old."

Both yacht and boat insurance can also include uninsured boat, towing, and medical payments coverages. If you're beginning to think we've gotten boat insurance mixed up with auto insurance, we haven't. The two aren't that different.

Uninsured boat coverage serves the same purpose as uninsured motorist coverage does in car insurance: to cover you in case the "other guy" doesn't have insurance. Medical payments coverage pays for medical costs incurred by someone on your boat. Towing coverage pays for the cost of having a commercial outfit tow your vessel back to port if it breaks down.

Keeping the costs down

Boating isn't usually an inexpensive hobby. With some knowledge and some prudent shopping, a boat, yacht, or personal watercraft insurance policy doesn't have to spoil your fun.

Insurers put a lot of weight on previous boat ownership, so if you've owned a boat before, it'll likely cost you less to get a policy.

The cost of a policy depends on several factors, including the type of vessel (such powerboat, sailboat, performance, or pleasure cruiser), its size, age, where it'll be used and even the boating experience of the operator. Laurence said the operator's age doesn't have any bearing on the cost of the policy. Instead, it's experience that counts. Insurers put a lot of weight on previous boat ownership, so if you've owned a boat before, it'll likely cost you less to get a policy.

According to the Insurance Information Institute, insuring a 25-foot speedboat worth between $20,000 and $25,000 would cost between $500 and $900 for physical damage coverage and about $5,000 for liability coverage. Before your eyes bug out any further, keep in mind that speedboats will be on the high end of the scale. A similarly sized sailboat might cost 25 percent to 50 percent less to insure. Just as sports cars are more expensive to insure than sedans, fast powerboats will cost more to insure than sailboats.

There's plenty you can do to keep your insurance costs down. For one, you can (and should) take an approved boating safety course. These are offered around the country by the U.S. Coast Guard Auxiliary and the U.S. Power Squadrons, and can give you a premium discount of anywhere from 5 percent to 20 percent. In some states, you're required to take one of these courses to operate a boat.

Boat owners should also inquire about discounts including:

  • Diesel powered crafts. It is less hazardous than gasoline since it is less likely to explode.
  • Coast Guard approved fire extinguishers.
  • Ship-to-shore radios.
  • Two years of claims-free experience.
  • Multi-policies with the same insurer, such as a car, home or umbrella policy.
  • Safety education courses, such as those offered by the Coast Guard Auxiliary (www.cgaux.org), U.S. Power Squadrons (www.usps.org), or the American Red Cross (www.redcross.org).

Premium discounts are also usually available for newer boats, protective devices (like a depth finder, ship-to-shore radio, or burglar alarm) and for getting your vessel inspected by the Coast Guard Auxiliary.

As with any insurance policy, higher deductibles can lower your premiums. Deductibles for watercraft policies range from 1 percent to 10 percent of the coverage. So if you have $20,000 in coverage, a 1 percent deductible would be $200. Before you opt for a higher deductible, you should make sure you can afford to pay it.

Still planning to get out on the water soon? When you do, don't forget your sunscreen and life preservers. Couple those with an insurance policy and they'll keep you from getting burned and keep you afloat.

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