Why You Need Boat Insurance

Unlike autos, for which every state requires at least liability insurance (in case you damage someone else's property or cause injury), few states require that you have such coverage for your boat. Arkansas and Utah, for example, are the only states that require liability coverage for powerboats (and, in Utah, only on those with engines producing more than 50 horsepower), though boats used in some state parks or kept in some state-run marinas may be required to be insured as well.

Though your state may not require you to have insurance, your bank, marina, and many organized boating events may require it. The bank will be listed as the lien holder on the policy, so that if any loss payments are made, it will be listed as a co-payee on the check. Also, most marinas require proof of at least liability insurance before they'll accept a contract for a slip or a mooring; some will want to be listed as an additional insured on the policy.

Note that if your state, bank, or marina requires you to carry boat insurance, your homeowner's policy will probably not be acceptable. That's because coverage under homeowner's policies is generally limited to boats under 16 feet with a small outboard and with a very low value (often as low as $1,000). Homeowner's policies don't have the necessary provisions to cover the different types of losses that may occur with a boat, such as salvage, wreck removal, or pollution liability. Boat insurance is designed to address the specific needs of boaters, including:

Litigation: Lawsuits have become common in our culture. Reading any newspaper makes it clear that people can and will sue others — even friends and neighbors — for just about anything. For example, let's say you take a friend out on your boat and encounter a large wake that slams your friend down against a hard seat. Even if your friend says he's OK, if it turns out later he's injured, you could be sued and held liable for all the medical bills as well as payments for lost time from work and even pain and suffering. Your boat policy will provide a defense attorney to represent you in such a suit, and it will pay any damages you're found to owe (up to the limit of the liability coverage).

Investment Protection: Without insurance, you risk losing your investment to accidents or to any number of other events. A single strong storm can (and frequently does) sink boats, a fire in a nearby boat can burn your boat, or you could be the victim of vandalism. If you want to protect yourself and your investment, how do you buy the right insurance and avoid overpaying? If you have a Chevy, you may not want to pay for Cadillac insurance; on the other hand, if you have a large investment, you may want to be protected from any significant loss.

Choosing A Policy

All-risk policies, with consequential-damage coverage for losses due to specific peril such as fire or sinking, are among the broadest recreational marine policies available today. They cover certain types of losses resulting from a failed part, even if the cause of the part's failure is excluded. With consequential-damage coverage, for example, if a thru-hull should fail due to corrosion (a typical exclusion in marine policies) and your boat sinks, the repair or replacement of the thru-hull would not be covered, but the damages directly related to the sinking would.

All-risk policies provide for a broad array of losses from an accidental cause that could befall your boat, such as theft, vandalism, lightning, fire, grounding, and sinking. When comparing policies, look for options that protect your personal items, such as watersports equipment and fishing gear. Non-emergency towing coverage is also important to have in the event of a breakdown.

Typical recreational marine policies in the market give you the option to insure your boat in the event of a total loss for its "agreed value" (also known as "stated value") or for the current market value (often "called actual cash value"), which may be lower than the agreed value. Generally, an actual cash value policy is less expensive. The larger the boat's value relative to your total assets, the more important insurance becomes to protect yourself from financial loss.

The Bare Minimum

If you're comfortable with risking the value of your boat, many companies, like BoatUS, also give you the option for a liability-only policy that doesn't insure physical damage to your boat at all but provides a specified amount of coverage for your liability to others in the event of an accident, as well as protection from uninsured boaters.

Even if your boat isn't worth very much, you should still consider purchasing liability insurance. A collision with a small powerboat can cause serious injuries, and even if you're not found liable for those injuries, it could cost a significant amount of money in legal fees to defend yourself against such claims.

Policies that cover liability only, with no hull coverage, can be significantly less expensive than full-coverage policies.

Note that if you already have a homeowner's umbrella (or excess-liability) policy, it will usually require your boat policy to have certain minimum liability limits (typically $300,000, but sometimes as high as $500,000), and you should make sure there's no coverage gap.

Boat insurance is flexible, so you can buy the right kind of policy at the right price for you, from one that protects your assets in case of a liability claim against you to one that covers the majority of situations that could damage or destroy your boat. Getting quotes on several different types of policies will allow you to make an informed decision based on the coverage versus the cost.