Understanding boat insurance

To help you understand the coverage options American Modern offers, we have built this glossary to explain key terms using as little insurance jargon as possible. If you have particular questions, talk to United Marine Underwriters at 866-484-BOAT.

Agreed value - The policy covers your boat for a value you and your agent agree upon when the policy is written. If there is a total loss, that dollar amount is what is paid. There is no depreciation, and no unwelcome surprise. This coverage is also known as stated value. Specialty marine agents recommend agreed value because it provides fuller protection than an actual cash value policy, which deducts for depreciation. For a new boat, your agent may recommend replacement cost coverage.

Collision coverage - Casualty insurance has three components: liability, collision and comprehensive. The collision portion of the policy covers your boat from physical damage caused by accidental contact with another boat or an object such as a submerged log.

Comprehensive coverage - Casualty insurance has three components: liability, collision and comprehensive. The comprehensive portion of the policy protects your hull from physical damage caused by anything other than a collision, such as fire, windstorm or vandalism. Theft is also a comprehensive coverage.

Declaration - A policy has several sections, most of which are standard to every policyholder. The portion of the policy that identifies you as the specifically insured party is the declaration, commonly called the “dec page.” This section of the policy lists your name and address, describes the property insured, gives its location, defines the policy term, states the limits and premium.

Deductible - When a covered loss occurs, a defined portion of the loss is the responsibility of the policyholder. Depending on the policy type, the deductible can be either a set dollar amount or a percentage of the claim. Increasing or decreasing the deductible will alter the premium for your policy because it shifts the likelihood that a claim will be filed.

Endorsement - An endorsement is any modification to the standard policy language or coverage. For example, Our Professional Angler Endorsement increases the limits of our standard boat policy.

Exclusion - Every insurance policy defines what it will and will not cover. Any item or condition or person that is not covered is an exclusion.

Extended coverage - A policy offers a defined set of coverages and exclusions, and most insurance companies offer a standard package. The scope of coverage can be extended to provide additional coverage to meet your particular circumstances and coverage requirements.

Hazard - Any circumstance that increases the likelihood of a loss or that increases the severity of a loss is a hazard. It is not a cause of loss, just a variable that make a loss more costly.

Liability coverage - Casualty insurance has three components: liability, collision and comprehensive. The liability portion of the policy covers your legal responsibility for bodily injury to someone or damage to someone’s property. It does not include physical damage protection for your own vehicle or injuries. In property insurance, liability coverage protects you against claims for bodily injury to someone or damage to the property of someone resulting from your negligence, such as slip-and-fall.

Limit - A limit is the maximum amount paid for a covered loss. In casualty policies, some minimum limits will be defined by your state. In property policies, you should choose a limit high enough to cover the value of your home and possessions.

Medical payments - Included in casualty policies is coverage for medical expenses caused by an accident-related injury. It is intended to cover basic medical costs without the need to assign responsibility for the accident. The coverage amount is generally a few thousand dollars. It is separate from liability coverage.

Named peril - A peril is any cause of damage or loss. Your policy will define what perils are covered. Named perils are specifically listed in the policy. If a loss occurs that is caused by an event not listed, then the policy will not offer you any compensation.

Policy - When you purchase a policy from an insurance company, you are entering into a binding contract. The contract defines its terms, your rights and coverages. You also have detailed obligations. It is important that you read and understand your policy. Its language takes precedence over what you may have been told by your agent, or what you may have read in a brochure or Web site.

Property/casualty insurance - The insurance industry is divided into segments. Property/casualty companies write coverage for damage to or loss of property, plus legal liability for damages caused to other people or their property.

Replacement cost - In the event of a total loss, the insurance company will establish a value for the damage. This is based on the kind of coverage you selected when you opened the policy. Replacement cost coverage is the most extensive coverage you can purchase. Its major advantage is that it avoids depreciation adjustments that apply to an actual cash value settlement, which can leave you without enough money to rebuild or replace your boat.

Settlement options - A settlement is the fulfillment by the insurance company of the terms of its policy following a covered loss. In the event of a partial loss, this is the repair of the damage. For a total loss, the settlement is based on a choice you make when you enter into the policy. One of the benefits of specialty insurance is that you have multiple choices, including actual cash value, replacement cost and agreed value. The policy will pay up to the maximum value listed on the policy.

Total Loss - When the damage to a vehicle or property is at a level where the cost of repairs exceeds its value, the insurance company will define it as a total loss. At that point the loss settlement to the policyholder is based on its actual cash value, replacement cost, or the agreed value stated on the policy. The policy will pay up to the maximum value listed on the policy.

Uninsured/Underinsured coverage - Not everyone purchases adequate insurance, or even has insurance. If you are unfortunate to be in an accident caused by someone with inadequate insurance, you can be stuck with the bill. To protect yourself, you can add uninsured and/or underinsured boater coverage to your policy. This extra coverage fills in the gap between the policy coverage of the at-fault driver and the actual cost of the damages or injuries.