Watercraft Insurance: What It is, How It Works

Anthony Battle is a CERTIFIED FINANCIAL PLANNER™ professional. He earned the Chartered Financial Consultant™ designation for advanced financial planning, the Chartered Life Underwriter™ designation for advanced insurance specialization, the Accredited Financial Counselor™ for Financial Counseling and both the Retirement Income Certified Professional™, and Certified Retirement Counselor designations for advance retirement planning.

What Is Watercraft Insurance?

Watercraft insurance is an umbrella term for three types of insurance: boat, yacht, and personal watercraft insurance. It protects against damages to vessels powered by a motor with a horsepower of at least 25 mph. Examples of costs covered by watercraft insurance include physical loss or damage to the boat, theft, and towing.

Key Takeaways

• Watercraft insurance includes boat, yacht, and personal watercraft insurance.
• Choice of coverage depends on the size of the vessel.
• Although not required in many states, boat owners often choose to purchase watercraft insurance.
• Watercraft insurance is often required by boat-loan providers and marinas.

How Watercraft Insurance Works

Depending on the policy, watercraft insurance may also include liability coverage for bodily injury to people other than the boat’s owner and family, guest passengers using the boat independently, and medical payments for injury to the owner and their family. Some policies require the purchase of additional liability coverage. The specific type of insurance depends on the size of the vessel.

Watercraft insurance is similar to other insurance products. By paying premiums, the policyholder receives protection from potentially costly risks. Premium costs vary based on factors such as the size, age, and intended use of the vessel. Insurance companies also consider the policyholder’s claims history when underwriting a policy.

Boat Insurance

A boat refers to any vessel under 197 feet long, while ships are 197 feet or longer. Defining the line between boat and yacht is less settled, with sources using different criteria. For insurance purposes, the National Boat Owners Association marks the dividing line at 27 feet.

Small craft such as canoes, rowboats, small sailboats, and powerboats with less than 25 mph horsepower may be covered under a standard homeowners or renter’s insurance policy. However, such coverage typically does not include liability insurance. Boat insurance covers theft, physical damage to the boat due to a collision or striking a submerged object, property damage caused by vandalism, windstorms, or lightning, and medical payments for injured passengers and the owner’s family. Depending on the coverage, there are different deductibles to be paid before insurance kicks in. Boat insurance frequently offers better liability insurance than homeowners policies, but additional liability coverage can be purchased as an add-on.

In the event of a total loss, it is important to know if the policy pays actual cash value (ACV) or agreed value (AV). ACV is cheaper as it pays for the boat’s value at the time of loss, factoring in depreciation and wear and tear. AV pays a pre-agreed amount, closer to the boat’s original purchase price.

Other considerations for boat insurance include:

• Lay-up period—covers property damage during the off-season when the boat is not in the water.
• Navigational territory—specifies where the boat can go and still be covered.
• Property damage—covers damage the boat causes to someone else’s property.
• Hurricane haul-out provisions—covers the cost of moving the boat before a windstorm.
• On-water towing and assistance—for unexpected breakdowns or running aground.
• Fuel spill liability protection—covers the costs of a clean-up in case of fuel discharge.
• Personal effects coverage—protects expensive equipment on the boat, like fishing gear.
• Ice and freeze coverage—pays for damage to the boat’s engine and water systems caused by cold weather.

Yacht Insurance

Yacht insurance provides broader and more specialized coverage compared to pleasure boat coverage, as larger vessels travel farther and face greater risks. Yacht insurance usually costs more due to higher vessel costs. Deductibles are typically a percentage of the insured value. For example, with a 1% deductible, a boat insured for $175,000 would have a $1,750 deductible. Most lenders allow a maximum deductible of 2% of the insured value.

Yacht insurance coverage usually excludes wear and tear, gradual deterioration, marine life, marring, scratching, denting, animal damage, osmosis, blistering, electrolysis, manufacturer’s defects, defects in design, and ice and freezing.

A yacht insurance policy consists of two main parts: hull insurance and protection and indemnity (P&I). Hull insurance is all-risk, direct damage coverage that includes an agreed value for hull coverage. In the case of a total loss, it will be paid out in full. Replacement cost coverage is available for partial losses, but certain items like sails, canvas, batteries, and outdrives are subject to depreciation.

P&I insurance is comprehensive liability coverage designed specifically for the maritime industry. It includes coverages such as longshore and harbor workers’ coverage and Jones Act coverage for the yacht’s crew. P&I insurance covers judgments and defense costs in admiralty courts.

Personal Watercraft Insurance

Personal watercraft insurance is for recreational vehicles like Jet Skis, Sea-Doos, and Yamaha Wave Runners. These craft can have engines ranging from 60 mph to 310 mph. They are usually not covered by homeowners insurance, and even if they are, the coverage limits are low.

Personal watercraft insurance covers the owner and anyone allowed to use the craft for risks such as bodily injury to others, liability costs if sued due to an accident, property damage to other watercraft or structures, theft, and towing after an accident. Deductibles and liability limits vary depending on the policy and the company offering it. Additional coverage can be purchased for trailers and accessories, and discounts may be available for owners with multiple crafts. Given the number of injuries associated with personal watercraft use, insurance is a wise investment.

Watercraft insurance policies may restrict the geographic areas where the boat or watercraft can be operated while maintaining coverage. Restrictions commonly include inland waterways, rivers, lakes, and ocean waters within a certain distance from shore.

Do I Need Watercraft Insurance?

While only a few states mandate watercraft insurance, many owners choose to purchase it anyway, especially when obtaining a boat loan or renting a slip at a marina. Regardless of the craft’s value, the risk of water-related injuries, collision, and legal fees make watercraft insurance a wise investment. When purchasing this insurance, it is important to compare policies from multiple companies to find the best coverage at the best price.