What boat insurance coverages do I need to consider?

Sales of all types of powerboats and personal watercraft are on the rise, and with each purchase, new owners are introduced to new liability risks and insurance coverages they've never had to consider.

Sales of modest-priced powerboats in 2017 increased 6% over 2014, a nearly 8% increase over 2016, according to the National Marine Manufacturers Association (NMMA). The NMMA expects sales to continue rising at in 2020.

It takes a lot to manage the risks associated with owning a boat while also remaining compliant with complex international and national maritime regulations governing their use. Similarly, insuring any type of boat, from a Jet Ski to a yacht, requires an understanding of the complicated property-damage risks and bodily injury exposures presented to owners.

Common risks of owning a boat

Many risks are obvious because of the unpredictable nature of the weather and conditions on the seas. If boats capsize in a squall, operators can be tossed or fall overboard.

Other considerations of boat ownership are more opaque, such as the territorial limitations on where an insured policyholder can sail the vessel. If the operator wanders outside the stated navigational limitations in the policy and suffers an accident damaging the boat and/or resulting in injury or death to those on board the craft, the insurance may not absorb the related financial losses.

In addition, there are requirements that a boat be kept in a seaworthy condition. In the event of an accident, if the maintenance of the craft is deemed inferior or improper, the insurer may deny the claim. Insurance coverage may not be available if a vessel is determined to have damage from insects, mold, animals (such as raccoons), zebra mussels, defective machinery and/or machinery damage. The same may be true if a watercraft was used in a race or if someone operated it other than the owner or listed operators.

Shared ownership of a vessel is another factor. It's not unusual for two friends or family members to buy and own a boat together. In most cases, the boat carries a single insurance policy naming both owners as the insured. If one owner is operating the boat over the weekend, the other owner is still bound by the same laws and liabilities governing the safe and compliant use of the vessel.

If one owner or his crew pilots the watercraft beyond the insurance policy’s territorial limits and the boat capsizes and causes injury to passengers, the other owner may be liable for half the loss.

There are other ramifications to consider. Owners of larger craft are required by the Jones Act to buy workers compensation insurance for a hired crew. The policy contains many of the same exclusions found in boat liability insurance and hull insurance. If the pilot is injured in an accident that is uninsured because of an exclusion, both owners may be liable to pay all the person’s medical, rehabilitation and loss-of-income expenses.

The bigger the watercraft, the more careful one must be in buying appropriate insurance. Small powerboats with less than 25 mph horsepower, for instance, can often be covered under the owner’s homeowners or renters insurance policy. Larger, faster boats require a separate boat insurance policy. To determine the appropriate insurance coverage, financial limits and premium, an insurer will typically factor in the size, type and value of the craft and where the owner plans to sail or motor it, according to the Insurance Information Institute.

When it comes to types of boat insurance, most boat policies have three options for covering property damage: Actual cash value (ACV), which generally pays for replacement costs less depreciation at the time of a covered loss; Agreed Value, meaning the owner and the insurer have agreed on the value of the vessel in the event of a covered total loss; or Replacement Cost, which means if the vessel is three years old or less the insurer will replace it with a similar vessel in the event of a covered total loss.

Given the nuanced considerations of watercraft ownership, a boat owner should work closely with a specialized insurance agent who understands these varied risks and particulars. Boat owners or buyers should ask an agent which insurance policy is best for the type of boat they have or are considering buying.

Few pastimes are as enjoyable as a day on the water. Knowing you’re fully insured by Nationwide will enhance the fun.