What Is Watercraft Insurance?

Watercraft insurance is an umbrella term for three types of insurance: boat insurance, yacht insurance, and personal watercraft insurance. It protects against damages to vessels powered by a motor that has horsepower of at least 25 miles per hour (mph). Examples of the types of costs covered by watercraft insurance policies include physical loss or damage to the boat, theft of the boat, and towing.

Depending on the policy, there may also be watercraft liability coverage for bodily injury to people other than the boat’s owner and family, guest passengers using the boat by themselves, and medical payments for injury to the owner and their family. Some policies, however, require the purchase of additional liability coverage as an add-on. The specific type of insurance you buy is dictated by the size of your vessel.

Key Takeaways

  • Watercraft insurance is an umbrella term for three types of insurance: boat insurance, yacht insurance, and personal watercraft insurance.
  • The type of coverage you buy is dictated by the size of your vessel.
  • Although watercraft insurance is not required in many states, many boat owners choose to purchase it anyway.
  • Boat-loan providers and marinas often require boat owners to have watercraft insurance.

How Watercraft Insurance Works

Watercraft insurance is similar to other types of insurance products. In exchange for paying a series of insurance premiums, the policyholder receives protection from certain rare but potentially costly risks. Depending on factors such as the size of the craft, its age, and its intended uses, the premium costs may range from relatively inexpensive to pricey. When underwriting a policy, an insurance company will also consider the policyholder’s track record of previous claims.

Boat insurance

Any vessel under 197 feet long is considered a boat, while ships are 197 feet or longer. The dividing line between boat and yacht is less settled. Some sources define a yacht as at least 30 feet long. Anything shorter is a pleasure boat. For insurance purposes, the National Boat Owners Association marks the dividing line at 27 feet.

Small craft, such as canoes, rowboats, small sailboats, and powerboats with less than 25 miles-per-hour horsepower may be covered under a standard homeowners or renter’s insurance policy. However, such coverage is unlikely to include liability insurance. Typical boat insurance covers theft; physical damage to the boat itself due to a collision or striking a submerged object; property damage to the boat caused by vandalism, a windstorm, or lightning; and medical payments for injured passengers and the owner and their family. For each coverage there will be different deductibles, which is how much you must pay out of pocket before your insurance kicks in. Boat insurance will often provide better liability insurance than a homeowners policy, but it is often wise to purchase additional liability coverage as an add-on.

In the event of a total loss, it is important to know whether your policy pays actual cash value (ACV) or agreed value (AV). ACV is cheaper, because it only pays for what the boat was worth at the time of the loss, factoring in depreciation and wear and tear on the vessel. AV pays a price that you and your insurer agree upon in advance, an amount that is likely to be closer to the amount you paid for the boat when new.

Other considerations for boat insurance can include:

  • Lay-up period—This covers your boat for property damage during the off-season, when it isn’t in the water.
  • Navigational territory—Your insurance will generally specify where you can go in your boat and still be covered.
  • Property damage—This is for damage your boat inflicts on someone else’s property.
  • Hurricane haul-out provisions—This covers your costs of getting the boat out of harm’s way before a windstorm. 
  • On-water towing and assistance—This is for unexpected breakdowns or running aground.
  • Fuel spill liability protection—Should there be an accidental discharge of fuel from your boat, this will cover the costs of a clean-up.
  • Personal effects coverage—This will protect any expensive equipment you have on your boat, such as fishing gear
  • Ice and freeze coverage—Should cold weather damage your boat’s engine and water systems, this will pay the bill.

Yacht insurance

Most yacht coverage is broader and more specialized than pleasure boat coverage because larger vessels travel farther and are exposed to greater risks. It also generally costs more, in part because yachts cost more. In terms of a deductible, it is usually determined as a percentage of the insured value. With a 1% deductible, a boat insured for $175,000 would have a $1,750 deductible. Most lenders allow a maximum deductible of 2% of the insured value.

Generally, yacht insurance coverage does not include wear and tear, gradual deterioration, marine life, marring, denting, scratching, animal damage, osmosis, blistering, electrolysis, manufacturer’s defects, defects in design, and ice and freezing.

There are two main parts of a yacht insurance policy: hull insurance and protection and indemnity (P&I). The first is an all-risk, direct damage coverage that includes an AV for hull coverage, and in the case of a total loss it will be paid out in full. Replacement cost coverage on partial losses is also available. However, sails, canvas, batteries, outboards, and sometimes outdrives are usually subject to depreciation instead.

P&I insurance is the broadest of all liability coverages, and because maritime law is particular, you will need coverages that are designed for those exposures. Longshore and harbor workers’ coverage and Jones Act coverage (for the yacht’s crew) are included and are important because your losses in these areas could run into six figures. P&I will cover any judgments against you and also pay for your defense in admiralty courts.

Personal watercraft insurance

Personal watercraft insurance is for recreational vehicles such as Jet Skis, Sea-Doos, and Yamaha Wave Runners. These surface-skimming craft can have engines with horsepower anywhere from 60 mph to 310 mph. They usually are not covered by homeowners insurance, and even when they are, the coverage limits are low.

Personal watercraft insurance covers the owner and anyone they allow to use the craft for risks such as:

  • Bodily injury to another person
  • Bodily injury to you that is caused by an uninsured watercraft operator
  • Liability in the form of legal costs if you’re sued due to an accident (which can include water sports liability for things such as waterskiing risks)
  • Property damage to another watercraft, a boat, or a dock
  • Theft
  • Towing after an accident

Deductibles and liability limits will vary depending upon the policy and the company offering it. You can buy additional coverage for trailers and accessories and, if you own more than one craft, you may be able to bundle your insurance policies for a discount. These pleasure vehicles are easy to use but can also be dangerous, causing thousands of injuries every year, which makes personal watercraft insurance a wise investment.

Watercraft insurance policies may limit the geographic areas in which the boat or watercraft can be operated while maintaining coverage. These often include inland waterways, rivers, and lakes, as well as ocean waters within a certain number of miles from shore.

Do I Need Watercraft Insurance?

Only a few states make it mandatory for boat owners to obtain watercraft insurance. However, many owners will opt to purchase it regardless, partly because doing so is required in order to obtain a boat loan. Marinas may also require owners to have watercraft insurance as a condition within their rental agreements.

Even if your craft isn’t worth much money, obtaining watercraft insurance is a good idea because of the risk of injury on the water, especially from a collision. Even if you aren’t at fault, you could spend a lot of money in legal fees defending yourself—much more than your insurance premiums. If you do decide to purchase this insurance, make a point of comparing policies from multiple companies before deciding on which is best for you. As with all insurance, the question is what price you put on having peace of mind.