How Does an Insurance Policy Work?

An insurance policy is a legal contract between you and an insurance company. You pay a premium to the company in exchange for the insurance company's promise to pay for your covered losses. There is an expectation of good faith, i.e., that you and the insurance company will be fair and honest in your dealings with one another.

How Do I Obtain Coverage for My Boat? Can I Ever Be Turned Down?

Insurance for your boat is offered in a competitive market. You can shop around for coverage through an independent insurance agent or directly from companies available in your area. Please note that an insurance company can decide to turn down your application for coverage.

In order to obtain an insurance policy for your boat, you must fill out an application to help the insurance company learn about you, your boat, and the risks the insurance company will be responsible for if it insures you under an insurance policy. After reviewing the information, the insurance company will use its own standards, known as underwriting guidelines, to decide whether to issue you a policy, and the rate it would charge for any coverage it provides.

If an insurer agrees to consider your application, the producer or company may issue you an "insurance binder", a legally binding statement indicating that you have immediate protection for a specified period of time during which the company will decide whether to issue you a policy. If the company formally accepts your application, it will issue a policy, usually covering a one year period. If your application is rejected, you will need to apply to another insurer.

Can an Insurer Ever Cancel or Nonrenew My Coverage?

Yes, an insurer can cancel or non-renew your coverage. You should read your policy carefully to determine the conditions for cancellation and non-renewal. Companies can cancel coverage, but only according to the conditions that are spelled out within the policy.

How Do I Find Companies that May Sell Me Insurance?

1) Licensed Insurance Companies:

There are many insurers licensed by the Division of Insurance that sell property and casualty policies in the Commonwealth of Massachusetts. In order to be licensed, an insurer must demonstrate it meets the state's minimum financial requirements to pay claims now and in the future. It must also agree to participate in the state's guaranty fund designed to protect policyholders if any licensed property and casualty insurance company is financially unable to pay claims. You can check here pdf format of BoatCompanies.pdf
for a list of companies in your area.

When considering a company, you may want to contact your neighbors, relatives, and friends for recommendations regarding their insurance company's service and price. In addition, for a fee, you can learn more about the financial strength of a particular insurance company by contacting any of the following insurance rating services

A.M. Best Company(908) 439-2200http://www.ambest.com
Duff & Phelps, LLC(212) 450-2800http://www.duffllc.com
Fitch Ratings(212) 908-0500http://www.fitchibca.com
Moody's Investors Services(212) 553-1658http://www.moodys.com
Standard & Poor's(877) 299-2569http://www.standardandpoors.com
Weiss Research Inc.(800) 289-9222http://www.weissratings.com

2) The Surplus Lines Market:

The surplus lines market is an unlicensed insurance market which can be an alternative market to provide coverage for boats that traditional carriers refuse to accept. Although surplus lines companies are permitted to issue policies to Massachusetts residents, they are not licensed by the Division of Insurance, are not regulated by state law and are not members of the state guaranty fund.

What Level of Insurance Do I Need to Protect My Boat?

You should consider a coverage limit that is high enough to help you replace or repair your boat at today's labor and material costs. This cost may be very different from the market value of your boat.

In addition to choosing the type and overall limits to your coverage, you will also choose the deductible level - this is the amount you will be expected to pay out-of-your pocket for covered losses before the insurer pays any claims. The higher the deductible amount chosen - and greater proportion of low-dollar claims that are your and not the insurer's responsibility - the lower the premium that you will have to pay.

Basic Coverages Available

There are differing combinations of coverage that may be offered to protect your boat. Most boat insurance programs are designed for boats up to 26 feet in length with those greater than 26 feet considered yachts and covered under special yacht insurance.

It is important to know which risks a policy covers and which risks are excluded. Each policy protects against a specific number of perils (events that cause damage to property). Examples of these perils include collision, fire, windstorm, theft, lightning or vandalism. Policies specifically exclude coverage for certain events, including, for example, acts of war or damages related to a poorly maintained vessel.

In addition to knowing the risks or perils covered, it is important to consider the expenses that are covered in the event of a covered peril. Each policy usually contains coverage for the following:

  • Property damage to your boat
  • Personal liability lawsuits arising out of the use and ownership of the boat
  • Limited medical payments for certain accidents occurring on your boat

(1) Property Damage

Typically, a boat insurance policy includes coverage for damage to watercraft and can include outboard motor boats, inboard boats, stern drives, jet drives, sailboats, houseboats, jet skis and boat equipment used to transport the above. The coverage also can include equipment that is permanently attached to the boat, such as, anchors, fuel tanks, motors, masts, depth finders, horns, lights, mooring cleats and lines, oars, two-way radios, and spars.

Boat policies do not usually include coverage for personal property, such as clothing, food, jewelry, parasails, stereos and portable television, scuba and other diving gear, water skiing equipment (although some of these can be added by endorsement). Policies also usually do not cover sails, masts or spars while the boat is operating in an official race or speed contest.

(2) Personal Liability Coverage

Most boat insurance policies include personal liability coverage to protect you against a claim or lawsuit resulting from bodily injury or property damage to others caused by your ownership, maintenance or use of the boat. Personal liability coverage limits may differ among companies and a policy may contain company-specific exclusions. You should check to determine what limit is appropriate for you.

(3) Medical Payments Coverage

Medical payments coverage pays for any medical expenses incurred by persons other than family members and those living with you who are accidentally injured while in, upon, boarding or leaving your boat. Basic medical payments coverage limits are usually set at a low dollar amount to cover minor injuries. You may wish to check with your producer or insurance company to determine if the amount of medical payments coverage on your policy is sufficient, or whether a higher limit would be more appropriate for you.

(4) Uninsured Boat Owner Coverage

If purchased, this provides coverage for your injuries resulting from an accident that is the fault of an uninsured boat owner or "hit and run" operator.

(5) Personal Effects Coverage

If purchased, this may provide coverage for your clothing, portable radios, fishing equipment, water skis or other personal items.

What Is My Boat's Value Under An Insurance Policy?

Your boat's value can be looked at in three very different ways:

  • Market value - represents what your property would sell for on the boat market.
  • Actual cash value - represents what your boat is worth today after adjusting for the normal wear and tear that may have depreciated the replacement value of the boat.
  • Replacement cost value - represents the cost that it may take to replace or repair your boat if it were destroyed or damaged.

Each of these may be significantly different than the other and should not be confused in determining the amount of coverage that you may need to repair or rebuild your boat. A boat that may sell for $100,000 may actually cost $150,000 to replace. Some policies will pay for replacement cost coverage; others may offer actual cash value; and others may use an "agreed value" negotiated by both parties when the policy is issued. You should talk with your producer about how much it may cost to replace your boat when considering the limits of your coverage.


If your coverage is less than the replacement cost, your insurance company is not obligated to pay to replace your boat. In the case of a total loss, the company only needs to pay up to the policy limits. For partial losses, an insurance company may only be obligated to pay a percentage of the loss based on the percentage that your policy limit would pay toward the cost to replace your entire property.

What May Affect the Cost of Insurance for My Boat?

Amount of Coverage: The amount of coverage you buy will affect the price you pay.

Deductible Amount: This is the amount of loss that the covered person is required to pay before the insurance company will pay any losses. The higher the deductible, the lower the price for the insured. An insured should keep in mind, however, that deductibles apply separately to each loss that may occur throughout the year.

Age and Condition of Boat: New or remodeled boats may have certain safety features to reduce risk while older boats may be subject to more damage in case of an accidental event.

History of Accidents: If you have a history of boating accidents, this may be used as a factor in setting your rates, based on the likelihood of your having future accidents.

Navigation Area and Length of Navigation Period: Where you operate your boat and the length of time you use the boat in any particular year can affect your premium.

Discounts: Most insurance companies offer a variety of discounts, including some of the following based upon projected reduced risks for certain features:

  • Multi-policy discounts for covering boat insurance and other insurance with the same carrier;
  • Safety equipment, including fire extinguishers, burglar alarms and ship-to-shore radios; and
  • Taking safety courses offered by the Coast Guard, American Red Cross, U.S. Power Squadron or National Association of State Boating Law Administrators (NASLAB).

How Can I Find Out How Much an Insurer May Charge to Insure My Boat?

When you shop for boat insurance, premium quotations are a useful tool for comparing different companies' products. However, when you ask for price quotations, it is important that you give the same information to each producer or company.

To give you an accurate quote, the producer or company will usually ask for the following: 

  • A description of your boat;
  • If you have security devices;
  • A picture of your boat;
  • The coverages and limits you want; and
  • Any prior property or liability losses.

How Do Insurers Market Insurance Policies?

Insurance companies generally use one of three methods to market their product: direct marketing, independent producers, or exclusive producers. The type of marketing method may or may not meet your needs, depending on the type of services offered. Therefore, you should be aware of each of the three methods and may want to consider these when you decide to buy insurance.

Some insurance companies use direct marketers who sell insurance through the mail and by telephone. Some insurance companies sell coverage through producers that only represent their company. These companies call their producers an exclusive producer force. If you decide to call producers for prices, ask them how many companies they represent. Independent producers represent several companies; therefore, you can get quotes for more than one company from just one producer. Many consumers consider this an advantage.