Insurance 101

September 2017 Own Roy Sparks

When it comes to buying anything—including a new or used houseboat—the advice is always the same: “Research, research and shop around.” This sage advice could not be more valuable when it comes to marine insurance. Whether you’ve made the decision to invest a huge sum of money in a recreational tool or living quarters, you need to protect that investment as best you can. While the subject of marine insurance can appear complex, if an accident ever does occur, knowing exactly what type of coverage you’ve paid for will become crucial.

There are hundreds of choices to be made when insuring your vessel; with a little research and preparation, you can easily make the right ones. However, signing up for the cheapest or easiest policy isn’t always the best way to go. 

The first step in your search for answers is to find the experienced and knowledgeable marine insurance agent. With such a huge variety in policy coverage out there, it’s important to enlist the help of an agent who knows something about the houseboat industry. There are two basic forms of coverage: Agreed Value and Actual Cash Value.

There are two items to consider when speaking about Agreed Value and Actual Cash Value. The first is how the policy pays in the event of a total loss. The Agreed Value policy simply pays the amount the boat was insured for. The Actual Cash Value will determine the value of the houseboat at the time of loss. The real issue with Actual Cash Value policies and a total loss is if the boat was insured for $40,000 8 years ago, on an Actual Cash Value policy the boat’s value might be $25,000. If you are insured on an Actual Cash Value policy, you need to make sure you have the boat valued correctly each year.

The second is how the policy responds in the event of a partial loss. With Actual Cash Value, the policies are always subject to depreciation. Labor is not depreciated but the materials are. So if you have a four-year-old stern drive and hit a submerged object, with Actual Cash Value, you could be looking at ten percent depreciation on the replacement cost of the stern drive or part. With Agreed Value, the stern drive will be replaced new for old with no depreciation. It is important to point out here that this would be specific per insurance company and their policy terms and conditions. Boat insurance policies are different from company to company. Some companies will provide replacement cost coverage for that stern drive for ten years; others would be five or even two years.

Others still may tell you that this loss is not covered. That's right! Some policies specifically exclude losses to machinery, props, shafts and engines unless the loss is caused by a named peril such as stranding, burning, sinking or collision with another watercraft. A grounding may not necessarily be interpreted as a stranding.

Marine insurance policies contain coverage mainly for hull and machinery physical damage, liability coverage, personal effects and medical coverage.

Hull and machinery coverage is for damage repair resulting from any accident (so long as it's not intentional) and the liability coverage is to pay for all expenses that you become legally responsible for as a result of your operation or ownership of the insured vessel. In some cases, liability coverage follows you around from boat to boat, just so long as you are the one operating it.

Generally speaking, personal watercrafts are not considered boats and hence your liability coverage is not following you around when you run them.

Watercraft Liability insurance, or Protection and Indemnity coverage (again depending on what you buy), is always included in the main package of coverage but you have to select the limits best for you. This will depend on a variety of factors that are usually personal and these should be discussed in detail with your marine agent in the first call that you have together.

Everybody wants to know how much it's going to cost to insure a boat; it depends on a variety of factors and options, the main one being the value of the hull. As hull value increases, so do insurance costs. The next is going to be the location. Mooring in a hurricane-prone area will require a larger premium—geographical risks substantially impact premium. A higher deductible drops the premium, and a lay-up period during the winter drops it some more. There are other variables that affect the premium such as your claims history, your experience and the age and make of your boat. Some insurance companies like BoatU.S. offer discounts to captains who have completed safety courses. See sidebar for details.

By taking time to understand the details and obtain the appropriate policy, you’ll have far more peace of mind to concentrate on what really matters: having fun.  

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