Personal watercraft insurance

1. Boatowners and Outboard Motor and Boat Policies

The homeowners policy provides only limited coverage for watercraft.

 Property coverage is subject to a special limit of $1,500, and coverage may be totally excluded for certain perils. 

Liability coverage is excluded for boats with motors of more than specified horsepower or boats of more than a specified length.

Insureds typically need more coverage for this exposure than that provided by the homeowners policy, particularly those who own larger or more powerful boats. 

This coverage can be provided through inland marine forms, ocean marine policies, or specialized policies.

Regardless of the type of coverage purchased, certain conditions and exclusions are almost always part of a personal watercraft policy.

 They stipulate that the craft must be used solely for private pleasure purposes and that coverage will not apply if the boat is hired out, chartered, or used to transport people or property for a fee. 

Coverage is usually excluded when the watercraft is being used in an official race or speed contest (unofficial events are not excluded).

Boatowners/watercraft package policies, developed by individual insurance companies, combine property, liability, and medical payments insurance on an open peril basis. 

They are used to insure boats under a specified length—such as 30 feet—or under a maximum dollar value, such as $25,000. Losses are usually paid on an actual cash value basis.

Outboard motor and boat insurance can be written to cover the physical damage exposure of boats.

 This insurance is commonly provided under open peril inland marine floaters. Outboard policies typically cover motors, motor boats, accessories, and trailers. 

Losses are usually paid on an actual cash value basis. Many provide a limited amount of coverage for collision damage to another vessel. 

When these policies are written, it is customary for the insured to have liability coverage under a homeowners policy or separate liability policy.

2. Personal Yacht Policies

Personal yacht policies are ocean marine forms that provide a package of property and liability coverages. 

Most inboard boats, sailboats with inboard auxiliary power, and large pleasure boats are insured under personal yacht policies. Smaller boats that are in good condition and have some value may also be covered under these policies.

When smaller vessels are insured on a personal yacht form, coverage is usually limited to property coverage on the hull, with or without coverage for a trailer. 

The liability exposure is usually covered under a homeowners or separate liability policy. Owners of larger vessels are more likely to purchase the complete package of yacht coverages, which includes:

■hull insurance (pays replacement cost for partial losses and on a valued basis for total losses);

■boat trailer insurance (pays on actual cash value basis);

■protection and indemnity (a form of bodily injury and property damage liability insurance);

■medical payments coverage; and

■federal longshore and harbor workers’ compensation insurance (provides benefits for maritime workers).

Coverage is usually provided on an open peril basis.

Hull coverage on a yacht policy contains a collision clause, which covers the insured’s liability for collision damage to other vessels. 

This is an additional amount of insurance, and it is equal to the amount of coverage written on the hull.

 Protection and indemnity (P&I) coverage for collision damage to another vessel begins after the insurance provided by the collision clause is exhausted.

A water skiing clause commonly excludes coverage for people skiing or otherwise being towed by the vessel until they are back on board or have landed safely.

218 Property and Casualty Insurance License Exam Manual

The layup warranty applies when the yacht is located in a safe berth for storage and is not being used, such as during the winter months. 

It provides for a return of premium because of the reduced risk of loss.

Every yacht policy has navigational limits, a clause that defines an area in which the yacht is permitted to operate. 

Losses that occur outside these limits are not covered unless the insurer has granted permission for the insured to do so.