Boat insurance policies are normally written using an “all risk” policy form. Do not think “all risk” means everything is covered. “All Risk” means that all damage to the boat is covered unless specifically excluded. So, when you have an “all risk” policy you need to review the policy exclusions to see what is covered. If it is not excluded, then it is covered.
Not common in the boat insurance industry but a policy could be written using a “named peril” policy form. A “named peril” policy only covers what is specifically stated or named in the policy. Fire, lightning, wind and theft would be common named perils.
There is really no way a “named peril” policy can name all the unexpected, odd situations that can happen to a boat owner. Think of the oddest situation you have experienced as a boat owner. With an “all risk” policy, if it is not specifically excluded, then it is covered.
What is Excluded?
All boat insurance policies have exclusions. The excluded items vary from company to company but generally include loss caused by wear and tear, gradual deterioration, weathering, insects, mold, animals and marine life. Some companies include coverage for damage caused by zebra mussels; others do not. Additional excluded items may include marring, scratching or denting, osmosis or blistering, manufacturer’s defects or defect in designs, and corrosion, except electrolytic (stray current) corrosion.
Most policies also exclude items having a latent defect that causes damage to your insured property; however, resulting damage may be covered. If your water pump is defective, a policy may not pay for the water pump but may pay all resulting damage to the engine.
Some boat insurance policies have “machinery damage exclusions” and others do not. Forget to put oil in your engine and the policy that does not have a “machinery damage exclusion” may provide coverage; the policy with the machinery damage exclusion would most likely not cover the loss.
What are Personal Effects?
Personal Effects are automatically available with most boat insurance policies. By design the coverage is narrow; most items on the boat are considered part of the boat and are, therefore, covered under hull insurance.
Personal Effects can include items like clothing, fishing rods and reels and scuba equipment. In order to understand Personal Effects you have to first review the definition of what is covered as the Hull (boat, machinery and equipment). A typical definition of Hull may include spars, sails, machinery, furniture, dinghies/tenders, outboard motors, fittings and other equipment normally required for the operation or maintenance of the vessel.
Items such as electronics, safety equipment (life jackets), furniture and a ship to shore cord would all be considered to be part of the boat and not covered by personal effects coverage.
How Is My Motor Covered?
Each insurance company will vary on how your motor is covered. Due to the high probability of loss, damage to stern drives and outboards is one of the most difficult items faced by you and your insurance agent.
What If I Have a Partial Loss, How Am I Paid?
When discussing insured value and how a boat insurance policy will pay, most people think about a total loss. This is important but the majority of claims are partial losses. Depending on how your policy responds could cost you several thousand dollars above your deductible.
A boat insurance policy has two different ways to pay in the event of a partial loss.
- One is to replace the damaged items new for old without deducting for depreciation.
- The second is to depreciate the damaged items in the event of a loss.
- Depreciated Value is defined as Replacement Cost, less depreciation.
Most boat insurance companies use a non published depreciation schedule that applies to partial losses. An example may be 7% depreciation per year on a stern drive or 15% depreciation per year on canvas. You will want a policy that pays replacement cost for a partial loss when available. Each insurance company will apply Replacement Cost and Depreciated Value differently.
Some boat insurance companies do not provide replacement cost coverage for partial losses. If the boat is insured on this policy form, then no matter the type of loss, the replacement parts are subject to depreciation. If the part costs $2,000 and is subject to 20% depreciation, you would be paid $2,000, less $400 depreciation, less your deductible.
Some boat insurance companies provide replacement cost for partial losses until the boat reaches a certain age. The age will vary with each insurance company. Once a boat reaches that age, all partial losses are settled on an actual cash value.
Most boat insurance companies that provide replacement cost for partial losses name specific items that are subject to depreciation. Canvas, sails, cloth, trailers, and plastics are examples of specifically named items. These items generally have a limited life span. They also specifically name items to be depreciated based on the item’s age. Outboards, stern drives and internal machinery are examples of items that change from replacement cost to depreciated value based on their age. Each insurance company has different specifically named items and different ages when items change from replacement cost to actual cash value. Replacement Cost for a partial loss is what you want when available. A depreciated value can cost you several thousand dollars.
Engines can be insured on replacement cost or depreciated value. If the boat insurance policy is written on actual cash value, then the engine will always be depreciated in the event of a loss. If the boat insurance policy is written on agreed value, some boat insurance companies will replace new for old without a deduction for depreciation, but only until the engine becomes a certain age.
The boat insurance company that uses agreed value may repair or replace a newer engine without deduction for depreciation. As the engine ages, the replacement cost may change to depreciated value. The age that a boat insurance company will apply depreciated value varies. Some will apply depreciated value on all outboards or stern drives regardless of age. Others change to depreciated value at age two, five or seven. The age when depreciated value is applied can be different for outboards, stern drives and inboards. There can also be differences between gasoline and diesel engines.
What is a Tender-Dinghy and How Is It Covered?
For yacht owners it’s important to remember to cover your Dinghy or Tender used to service your yacht. A Tender or Dinghy is a small boat used to service the larger boat. Some boat insurance policies automatically include a Tender as a covered item in the hull (boat, machinery and equipment) definition. If automatically covered, it may have the same deductible as the boat. Most insurance companies will allow you to schedule the Tender to obtain a lower deductible for an additional premium. Companies provide coverage on agreed value or actual cash value.
Some companies do not provide any coverage automatically and you have to provide us with the details on the tender or it will not be covered. Many companies provide specific requirements regarding size or horsepower in order to qualify as a tender; others just say small boat. Personal Watercraft are normally specifically excluded and not considered a tender.
If you have a second boat that you use to go out on a regular basis that it not being used to service the larger vessel, you need to have this boat insured separately.
Is My Trailer Covered?
Most boat insurance policies can provide coverage for a trailer if requested. This coverage is usually insured on an actual cash value basis.
The main note of interest regarding boat insurance and the trailer is that there is no liability coverage on the trailer or on the boat when connected to a vehicle. The liability on the vehicle is the liability on the boat and the trailer. If the boat or the trailer is on the road and comes loose and causes bodily injury or property damage to a third party, the liability coverage on the vehicle is responsible.
If the boat or trailer is damaged while connected to a vehicle, the damage is covered by the boat insurance company.
Some states require proof of liability insurance on the trailer. This proof is provided by the automobile insurance policy.
What is Fuel Spill – Pollution Coverage?
Pollution has always been covered under the liability section of boat insurance policies. In recent years we have seen boat insurance companies providing a separate limit for Pollution/Fuel Spill coverage. Most companies do not make pollution/fuel spill coverage dependent on a covered loss, but some do. This is an important difference.
We have one market that provides a separate limit of $800,000 and does not make it a requirement to be a covered claim.
We have one market that does not provide a separate limit. They provide coverage within the liability limit and will increase the pollution/fuel spill to the legal limit of $800,000 if your liability limit is lower. This is not the same as having a separate limit, having a separate limit is best. This market does not make it required that it be a covered loss.
We have a market that includes pollution in the liability limit and they do make it a requirement that it be from a covered loss.
Another interesting point regarding fuel spill coverage is that most insurance companies do not pay fines or penalties.
Boat Insurance Deductibles
What is a Hull Deductible?
The hull deductible is the amount you will pay in the event of loss to the hull, machinery and equipment. Some boat insurance companies will use flat deductible amounts like $250, $500, $750 or $1000. Others will use a percentage of the boat value. 1% of the boat value or $250 is generally the minimum deductible available.
Insurance companies give a discount in premium if you agree to a deductible higher than the minimum. The savings in premium varies per company. Normally the largest percentage of savings comes between the $250 and $500 (1% and 2%) deductibles. So if you have a $40,000 boat and the minimum hull deductible is 1%, your deductible would be $400. Most insurance companies will require a higher minimum deductible as the boat ages. The minimum hull deductible may go from $250 to $500 or 1% to 2%.
Trailers, tenders and personal effects are not generally included in the hull deductible. These items have flat deductible amounts of $100, $250 or $500 and generally can not be changed.
Note of interest. Most boat insurance policies do not apply the hull deductible in the event of a total loss.
What is an Electronics Deductible?
Some boat insurance companies have a separate electronics deductible. This deductible is lower than the hull deductible. If you have a $40,000 boat with a 1% ($400) hull deductible, this $400 would apply to electronics unless you have an electronics deductible.
The electronics deductible is a flat amount of $250, $500 or other specific amount. Some boat insurance programs will automatically include a lower electronics deductible while others add it by endorsement for free or for an additional premium. Some companies do not offer a lower electronics deductible.
What is a Named Storm Deductible?
A Named Storm Deductible (NSD) is common today for vessels in areas subject to hurricanes, tropical storms and tropical depressions. The NSD is higher than the normal hull deductible and will be applied if the boat is damaged due to a named storm.
The NSD varies with each boat insurance company. Some do not have a NSD; others will have 2%, 5% or 10% of the boat value or 2 times the hull deductible. The most common is 5% of the hull value with 10% in high storm areas such as Florida and the remainder of the Gulf Coast. In addition to the deductible being higher, the NSD also applies in the event of a total loss.
What are Salvage Charges?
Salvage charges are amounts paid to protect the vessel against additional loss. This could be as simple as adding a barrier to a broken window or as complicated as a salvage company protecting the vessel if grounded.
Most marine insurance polices provide salvage charges as part of the normal boat insurance policies. Other companies will insure your boat from physical damage but do not provide coverage for salvage charges. This is an important difference and you should be aware if your policy provides this protection.
A boat insured for $40,000 that suffers a total loss from a sinking is paid $40,000 for the loss. If there is an additional cost of $20,000 to raise the vessel, this $20,000 will be paid in addition to the $40,000 coverage for the boat.
If a boat insurance policy did not include salvage charges, the additional $20,000 would be your responsibility. Most insurance companies will pay up to the hull value for salvage charges. If the boat is insured for $40,000, the boat insurance company will pay up to $40,000 in additional salvage charges.
Transporting Your Boat
If you are transporting your boat over land on a trailer that you own, most insurance policies do not have any restrictions or exclusions. If you are using a commercial hauler to transport your boat, many companies will exclude coverage while the vessel is being transported.
In many cases the companies will allow you to buy the coverage back, but you first need to know if it is covered or not.
Some companies may exclude coverage anytime the vessel is being transported commercially, and others will have a limitation such as if more than 200 or 300 miles radius from your home port.