Is Boat Insurance Necessary?

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According to the 2015 U.S. Boat Registrations Report, more than 70 million people own a boat. Unfortunately, some boaters may not realize the risks of ownership. What if you wipe out a pier at the marina? Or, someone gets injured while onboard? Will you be covered... or not?

There's nothing quite as exciting as boating - the wind in your hair, the sun on your skin, and the spray of the waves as you glide through the water. If you are a boating enthusiast, it is important for you to understand whether your insurance coverage is sufficient.

Will My Other Insurance Cover a Boat?

You might think your auto insurance, or even your homeowners insurance, covers your boat. In most cases, it will not. Here's what my insurance agent had to say when I asked about it: "Many homeowner policies have minimal, if any, amount of coverage. And it would only be applicable to very small boats with no engine or a very small engine."

Think canoes, sailing dinghies, and aluminum fishing boats. If your boat is larger than 16 feet or valued at more than a couple thousand dollars, your homeowner's policy won't be sufficient. And that will likely be the case for most boat owners. In 2012, the average manufacturer suggested retail price of a 21- to 24-foot, standard runabout-type boat with 230-260 horsepower was more than $65,000. This year the Carefree Boater projects the price to be about $80,000.

Important Tip: For adequate coverage, you need a dedicated policy.

What’s Different about a Boat Policy?

A boating policy shares some similarities to a home or auto policy, but covers additional areas specific to boating. Just like your home policy, a boat policy provides liability coverage if someone is injured on your boat. Like your auto policy, boat insurance covers bodily injury caused by you and/or your boat as well as property damage and physical damage to your boat should you hit something. You can also purchase comprehensive coverage to protect against theft, vandalism, personal property loss, and uninsured boaters.

However, a boating policy differs from an auto or homeowner policy with regards to coverage during "lay-up" periods and the option to select "agreed value" or "market value" coverage.

  • Lay-up periods allow you to suspend coverage for long periods of time when you may not use your boat. Think winters in the Midwest. Your boat may be in storage for half the year! The inclusion of lay-up periods will reduce your premium.
  • With agreed versus market valuation, you determine whether the insurer will pay you an agreed amount (fixed, replacement cost) or the market value (depreciated, actual cash value) in the case of a total loss. Going with a market valuation can reduce your premiums by as much as 25 percent. However, if you took out a loan to purchase your boat, your lender will likely require your policy to specify an agreed value.

Will Boat Insurance Cover Everything?

Actually, no! If you pull your boat, the trailer is covered by your auto policy. It is important to understand the boat policy's limits regarding the trailer as well as transporting your boat. Boat insurance typically does not cover bodily injury or property damage that may occur while pulling the boat on the road. This creates a gap in coverage. You may need to consider an umbrella liability policy to cover this exposure.

Also, understand that your boat may not be covered on all bodies of water. Many polices are limited to the inland and coastal waters of the United States and Canada. Larger boats can obtain insurance for greater distances; however, for political and security reasons, some areas may be excluded.

Another "extra" you should consider is coverage for towing and salvage. A $200 tow charge to get your car to a mechanic will pale in comparison to the charge for towing your disabled boat from the middle of Lake Michigan. This can easily cost thousands of dollars! The same is true if you must remove your sunken boat from a public harbor following a disaster.

Summary

If you plan to enjoy the wind, sun, and waves in a new boat of any size, talk with your insurance agent before making the purchase. Get specific about the type of boat you want and your intended use. Detail all the safety features and determine an appropriate lay-up period. I also suggest that you take a boating class. All of this will help reduce your premiums - and avoid any headaches you may experience should you encounter a problem.

Ryan Jeffries is a Business Systems Manager with Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at bedelfinancial.com or email Ryan.

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