Boat and watercraft insurance explained: a beginner's guide

The four states we work in are dry, and they have a great deal of water. Lake Powell, Lake Mead, Lake Havasu, Bear Lake, Lake Tahoe's Nevada shore, Coeur d'Alene, Payette and the Snake all fill with boats from spring to autumn, and most of those boats spend the rest of the year on a trailer in a driveway. That pattern, a high-value object used hard for a season and stored for the rest, is what a boat policy is designed around.

Boat owners are frequently surprised twice: first that the homeowner policy does almost nothing for the boat, and second by how much a boat policy does once they read it. This guide covers both, explains the two ways a hull can be valued, and walks through the liability exposure, which on the water includes things a car owner never thinks about.

What the homeowner policy does and does not do

A standard homeowner policy covers watercraft as personal property only up to a small sublimit, typically enough for a canoe or a kayak and not for anything with an engine of consequence. Its liability coverage extends only to small boats, defined by engine horsepower or by length for sailboats, and excludes the rest. A ski boat, a wakeboard boat, a pontoon, a jet ski or a bass boat with a large outboard is outside the home policy on both counts. The renters policy is the same. Anything you would be upset to lose, or that could hurt someone at speed, needs its own policy.

Hull coverage: agreed value or actual cash value

The physical damage part of a boat policy, called hull coverage, insures the boat, its motor, the trailer and permanently attached equipment against collision, sinking, fire, theft, storm, vandalism and, on an open-peril form, anything else not excluded. The decision is the basis of valuation. Under actual cash value the carrier pays the depreciated market value at the time of the loss; under agreed value you and the carrier fix the boat's worth at inception and a total loss pays that figure, without depreciation, less the deductible. Agreed value costs more, is normally available only on newer boats, and is the right choice for any boat whose replacement would cost more than a valuation guide suggests.

Suppose a wake boat was bought for $80,000 three years ago and is written at an agreed value of $70,000 with a $1,000 deductible. It sinks at the dock after a through-hull fitting fails. The policy pays $69,000. Under an actual cash value form, the carrier might value the boat at $55,000 and pay $54,000. Both are hypothetical figures; the gap between them is what the extra premium buys. Partial losses on either form are usually paid at replacement cost for most parts, with depreciation applied to items that wear, such as canvas, sails, upholstery and outdrives, so the difference shows mainly on a total loss.

Liability on the water and on the ramp

Watercraft liability pays what you owe for injury or damage caused by the boat: a collision with another boat, a swimmer struck, a skier you are towing injured, a dock damaged. It also pays for the defence. Most policies extend it to anyone operating the boat with your permission, and to you when operating a borrowed boat of similar size. When the boat is on its trailer behind a vehicle, liability for the tow generally follows the auto policy; the boat policy takes over once the trailer is unhitched at the ramp.

Two liability items are specific to boats. Wreck removal pays to raise and remove a sunken boat when a marina, a lake authority or the federal agency managing the reservoir requires it, which they will, and the cost can exceed the boat's value. Fuel spill liability pays for cleanup and penalties after a fuel or oil release, which is a federal matter on many of the region's lakes. Check that both are included, and at what limit. Medical payments coverage pays small medical bills for anyone hurt on or around the boat regardless of fault, and uninsured boater coverage pays your own injuries when the other operator has no insurance, which is common on the water.

Navigational limits, lay-up and the trailer

A boat policy has three conditions that a car owner never encounters.

• Navigational territory: the policy covers the boat only within a stated area, typically inland lakes and rivers of the United States and sometimes a coastal band. Taking the boat to Mexico or into the Sea of Cortez needs the territory extended and, often, a Mexican liability policy for the tow.
• Lay-up period: many carriers set dates, commonly late autumn to early spring in Idaho and Utah, during which the boat is assumed to be out of the water; coverage continues but use during lay-up may be excluded or may need to be declared. Owners in Arizona and Nevada who boat year round should make sure the policy does not carry a lay-up they never agreed to.
• The trailer: usually covered under hull coverage for physical damage if listed with its own value, and not covered at all if it is not. A trailer stolen from a driveway in Mesa is the commonest boat claim that has nothing to do with water.

What is commonly excluded

Wear and tear, corrosion, marine growth, freezing damage where winterisation was neglected, and gradual deterioration are excluded, as is mechanical breakdown other than as the result of a covered accident. Racing and speed tests are excluded for power boats; some carriers allow sailboat racing. Operation by someone under the influence, or by an operator not meeting the policy's age or licensing conditions, can void coverage for that loss; Idaho, Utah, Nevada and Arizona each have their own boater education and age rules for motorised craft, and the policy may reference them. Personal effects on board, fishing gear and electronics not permanently installed are covered only by endorsement. Damage from a named hurricane is usually irrelevant inland but appears on some forms as a percentage deductible; make sure it does not.

What decides the premium

The boat itself comes first: type, length, horsepower, top speed, age and value, with high-performance boats and personal watercraft rated highest. Then the operator: age, boating experience, a completed boater safety course, and driving and boating records. Then where and how: the primary lake, whether the boat is stored on a lift, in a dry stack, on a trailer or in a slip, and the months of use. Then choices: agreed or actual cash value, deductibles, liability limits, and endorsements for towing on the water, personal effects and fishing equipment. Where a boat is financed, the lender will require hull coverage and be named as loss payee, and a marina slip contract may require liability at a stated limit.

How the umbrella fits

A boat that can tow a skier at speed is a liability exposure on the scale of a car. If the household carries a personal umbrella, the boat must be listed on it and the boat policy must carry the liability limit the umbrella requires, or the umbrella will not respond to a boating claim. If there is no umbrella, a serious injury on the water is an argument for one. The order of operations is to set the boat liability limit first and then place the umbrella above it.

How to use this

Write down the boat's realistic replacement cost with motor and trailer, the lakes you use it on and whether any are outside the country, the months it is in the water, who operates it, and whether the household has an umbrella. Those facts set the valuation basis, the territory, the lay-up dates, the operator listings and the liability limit, and from there quoting is quick. We compare across the carriers we represent in Arizona, Nevada, Utah and Idaho, and if the current policy already answers those questions correctly, the analysis says keep it.