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Why Watercraft Insurance?
A large and increasing number of individuals enjoy the benefits of owning and using a personal watercraft such as a sailboat or motorboat. Owning or operating such watercraft, however, can also be a potential source of serious financial risk. Personal liability arising from losses suffered by others, or the cost of repairing or replacing a damaged, destroyed, or stolen watercraft can be very high.
Further, some states, yacht clubs, marinas, and lake associations have mandatory watercraft liability requirements, compelling owners to maintain liability insurance as a condition of licensing or use of facilities and recreation areas.
Sources of Watercraft Insurance
There are a number of sources of insurance coverage for watercraft owners.
● Homeowner’s insurance: A limited amount of liability coverage for certain types of small watercraft is provided in many homeowner’s policies.
● Endorsement of a homeowner’s policy: Some homeowner’s policies may provide for coverage for watercraft through endorsement and payment of an additional premium.
● Comprehensive watercraft insurance: Such policies can provide a boat owner with higher levels of coverage, as well as protection against a broader spectrum of perils, than does a homeowner’s policy. Coverage can also be provided for situations unique to watercraft ownership and use.
Coverage Under the Policy
In many respects, the protection provided by a comprehensive watercraft insurance policy (also known as a boat owner’s policy) is similar to the coverage offered in many automobile insurance policies; protection is provided against a number of perils in one package. Typical coverage includes the following:
● Physical damage: Also known as hull coverage, this coverage protects the insured against damage or loss to a covered watercraft, including trailers, outboard motors, equipment, and furnishings. Insurance is typically provided on an all-risk basis, subject to certain standard exclusions. Reimbursement is generally based on actual cash value, although some insurers may offer policies using either an agreed value (face amount of insurance) or a replacement cost option.
● Liability coverage: This coverage is sometimes called protection and indemnity (P&I) coverage. It protects the owner against losses from legal liability arising from bodily injury or property damage caused by a watercraft accident. Coverage is normally provided up to a specific dollar amount.
● Medical payments: This policy provision pays medical expenses because of an injury sustained during an accident involving the insured watercraft. Coverage is usually provided up to a specific dollar amount.
● Uninsured boater: This coverage pays for bodily injury sustained in an incident caused by an uninsured boater. The provision usually pays up to a specified dollar limit and is normally offered as an optional coverage.
Common Policy Exclusions
A standard, comprehensive watercraft policy will specifically exclude a number of perils from coverage. In some situations, policy coverage for these excluded perils can be added through an endorsement and the payment of an additional premium. In other situations, a separate policy may be required to provide coverage. Typical policy exclusions might include the following:
● High-risk watercraft: Many policies exclude certain types of high-risk watercraft such as wave-runners and jet skis. Special policies are available to cover such craft.
● Nonstandard watercraft: These include submersible or air-propelled (hovercraft) watercraft.
● Yachts: Generally refers to larger vessels capable of navigating on the high seas. Such craft are normally covered under yacht policies.
● Watercraft used for charter: The term “charter” refers to using the insured watercraft for hire, rent, or lease.
● High-risk activities: Excluded high-risk activities include powerboat racing in an official race or speed contest, as well as towing individuals paragliding or parasailing. Some policies exclude water skiers towed by the insured craft from medical payments coverage.
While property damage and liability are coverages common to many types of property insurance, the ownership and use of watercraft present some unique situations, some of which may be covered in a comprehensive watercraft policy.
● Wreck removal: Coverage to pay for the removal of a wreck. For example, the Coast Guard or Army Corps of Engineers may deem a partially sunken vessel to be a hazard to navigation and order it to be removed or destroyed.
● Salvage charges: Refers to reasonable and necessary expenses incurred to protect a covered watercraft from a dangerous situation where loss or destruction is possible. May also cover a reward to the salvor.
● Towing: Some policies may provide coverage for towing a watercraft (on land or in the water) to the nearest repair site, if the craft is damaged by a covered peril.
● Longshoremen’s and harbor workers’ compensation: Provides coverage for an insured’s liability, under the Federal Longshoremen’s and Harbor Workers’ Compensation Act, for injury to dockside workers. Coverage is statutory, with the terms of coverage prescribed by federal law. It is usually included as a part of the liability coverage in those states that require it.
● Jones Act: Protects the owner of the vessel from liability arising from the death of, or injury to, the captain or crew while on the water.
Understand the Policy
An insurance policy is a written contract between the insured and the insurance company. The protection provided by the policy typically represents a significant part of an individual’s overall risk management program. Thus, it’s important for an insured individual to read and understand key policy provisions such as the following:
● What perils are covered in the policy? A basic policy may not provide as much protection as is necessary.
● What perils are not covered? For an additional premium, coverage for excluded perils can often be added to a policy.
● What are the limits of coverage? The maximum dollar amount the insurance company will pay in the event of a covered loss.
● What are the deductible amounts? A deductible is a dollar amount or percentage the insured must pay before the insurance company pays its portion of the loss.
● In the event of a loss, what are the duties of the insured? A policy will usually list the steps that must be taken in the event of a loss.
Seek Professional Guidance
Insurance agents and brokers, insurance counselors, and other trained financial consultants can help provide answers to detailed questions about a particular policy. These professionals are also helpful in selecting the right policy and the appropriate amount of coverage.