Better understanding your risks and obligations will help you find the best policy for your boat

In September 1992, I was on my first solo voyage aboard a newly purchased 1976 Bristol 24, heading north up the Hudson River bound for Lake Ontario by way of the Erie and Oswego canals in preparation for a Great Lakes cruise the following summer. I was tied up at Kingston, New York, when my wife, Liz, gave me the bad news.

"The insurance company dropped us," my wife said over the phone. "I got the call this morning."

"What? What do you mean 'dropped us?'"

I heard the rustle of paper. "Let me see, I think it was something about the inexperience of the skipper and the age of the boat. Yes, that's it," Liz said. "But our agent says not to worry. He'll line up another company."

Well, needless to say, I was surprised as I hung up the phone and walked back to the boat. And I was worried. The Bristol was considered old (some companies had refused to insure it) and I did lack experience from a boat ownership perspective. I continued on my way and in a few days our agent found me another insurer. No harm, no foul.
That was my first experience with boat insurance. I've had many others over the years, and suffice it to say finding the right policy for the specific vessel and its intended use can sometimes be a trip down the rabbit hole in Alice in Wonderland. There are all kinds of policies and insurers offering products that may or may not provide the coverage you need when the chips are down.

For example, some sailors think it's better and cheaper to simply add the boat to their home and auto insurance package. That's fine if the boat is inexpensive, is unlikely to create a large fuel spill if it is damaged or sinks and is unlikely to require an extensive salvage effort in either unhappy event. But did you know that many policies from general insurers leave out some or all of the costs to salvage a vessel or remove a wreck? Fuel spills aren't always covered in full, either. Uninsured boater coverage is also lacking in some cases. And some policies don't cover sailboats damaged during a race.

What exactly does your policy cover and what does it exclude? If you don't know, you should find out.

"Make sure you know and understand the coverage you're buying, and look for gaps in the coverage in your particular policy," said Jim Nolan, vice president of underwriting for BoatU.S. Marine Insurance in Alexandria, Virginia. "It's not so much what you pay up front, but what you'll end up paying if you have a partial or total loss."

Just knowing what questions to ask can be difficult and insurance jargon abounds. The following will help you sort it all out.

First, do you own a boat or a yacht? Generally speaking, vessels over 27 feet in length are considered yachts. Now that the easy part is done, let's move on to the differences between "agreed-value" and "actual cash value" policies.

In most cases, a yacht should have an agreed-value policy even though it's more expensive than an actual cash value policy. This also goes for boats under 27 feet in length that are expensive. You and the insurer agree on the value of the vessel, typically the amount specified in the insurance or buyer's survey for that specific boat (not replacement costs for a new boat of a similar type) and that amount is written into the policy. If the boat is deemed a total loss, that's the amount you'll receive. These policies may also provide for replacement of certain parts and equipment in a partial loss situation on what's often called a "new for old" basis while factoring in little or no depreciation, depending on the insurer.
"Pricing is fairly consistent among marine insurers," said Neal Booth, president of the Boat Insurance Agency in Seattle, Washington. "But there are differences in the companies. Some like powerboats, sailboats or older boats vs. new boats. Some like liveaboards and some don't. That's one reason we work with so many companies. It's important to match the company and policy to the boat."

Agreed-value policies usually cover salvage, wreck removal costs and fuel spills, but exactly what is the dollar amount of this coverage? Find out because some policies don't provide a separate pot of cash equal to the agreed value of the hull in salvage, wreck removal and fuel spill cases. You might get paid the full agreed value of the boat, and then have to pay some or all of the above costs yourself, which in turn reduces the amount of cash you have available to buy another boat or make repairs in a partial loss situation. The rule of thumb is you want the policy to pay the agreed value of the boat, plus the same amount or more to cover those other costs. Boat insurance added to homeowner policies often limits this coverage.

Actual cash value policies are cheaper by as much as 20 to 50 percent vs. agreed value policies, says Nolan, but they depreciate the boat and any equipment that might need replacement in the event of a claim. In other words, you get only what that stolen chartplotter might be worth on the day it was stolen, not when it was new. When you buy a new boat, it depreciates as soon as you take possession. How would you like it if it sank a day later and you got stuck with the difference between the price you paid and that depreciation? On the other hand, if your boat is inexpensive and you don't mind taking some risks, an actual cash value policy might be fine.

An all-risks policy simply means that most risks are covered, such as the total or partial loss of the boat, some replacement costs (new for old), some repairs, loss or theft of some personal effects, dinghy and outboard loss or theft, liability, specified medical costs, uninsured boater incidents, hurricane haulout assistance (partial payments to put the boat on the hard when a named storm approaches), and towing and/or soft grounding coverage in cases where the boat isn't in immediate danger. Naturally, exclusions apply, so read the fine print on your particular policy.

A named-peril policy will say what will be paid for in the event of a claim and exclude everything else. Some policies don't include ice and freezing losses, so if it gets cold where you live, this coverage is probably a good idea even if your boat is on the hard during the winter. A "port risk" policy is one that excludes navigation coverage, but covers the boat against loss, theft, fire and personal injury in the designated port. These are an option when you're trying to sell your boat or if you know you won't be using it for a year or more.
Comprehensive boat insurance for most risks can be expensive, but there are ways to get some breaks, such as opting for a high deductible. Avoiding areas considered at high risk for hurricanes is helpful. Staying within the specified navigation limits is also important. Never leave the insured zone without securing a rider for extended navigation. Discounts for propane sniffers, taking a safe boating course, and joining the U.S. Power Squadrons or U.S. Coast Guard Auxiliary can all get you discounts, depending on the carrier. If you don't mind taking risks and your boat is paid for, you can also simply get a "liability only" policy, which won't cover the value of the boat, replacement costs and repairs.

In today's market, it's possible that your boat is worth less than it was a year ago, which means you could be over-insured. "It's important to make sure everything is insured at its current value," Booth said. "Market values on boats are down due to the economy, so it pays to evaluate the actual value of your boat and to adjust your insurance accordingly to save on your premiums."

Boat insurance can get complicated, but if you know what to ask the agent and what to look for in a policy, you can easily get the insurance that's right for your boat and its intended use. Always buy insurance based on the worst-case scenario, not on the hope that you'll never have to file a claim.

"The more you know about your policy, the better," Booth said. "That way you won't be in for an unpleasant surprise if you have a partial or total loss."