Why Buy Boat Insurance?
Boat insurance is financial protection to cover you and your loved ones from the costs of unexpected events damaging your boat, such as natural disasters, including hurricanes, or the costs you may be liable for due to boat-related accidents, such as collision with another vessel, a swimmer, or water skier that may lead to property damage or bodily injury claims.
While boat insurance is intended to address the costs of unexpected damages beyond your reasonable control, it is not intended to pay for routine maintenance or expected repairs you need to maintain your boat such as the cost of replacing worn out decks.
There is no law in Massachusetts requiring that you purchase insurance for your boat, but it is prudent to consider this coverage to protect the investment you have made in your boat. If damaged, it may take many years to repair or replace your boat without the financial protection that boat insurance may provide. In addition, you are liable for all property damage and bodily injury claims that are due to boat-related accidents. Boat insurance can protect you from expensive claims related to these accidents.
You also may need to keep in mind that if you need a loan to help pay for your boat, your lender or bank may not loan you money unless you buy and maintain insurance on your boat. If you drop coverage or stop paying for it, some loan agreements permit the lender to accelerate the loan and demand immediate payment of the entire loan balance. Even though a lender may require that you have insurance, the lender cannot require you to obtain the coverage from a particular insurer and cannot require you to insure your boat for more than its value.
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 a 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 responsibility and not the insurer's responsibility - the lower the premium that you will have to pay.
Your boat's value can be looked at in three very different ways:
- Market value - represents what your boat would sell for on the 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 insurance 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.