A boat owners policy works much like a small auto policy for the water. The CDI outline lists its typical coverages as liability, medical payments and physical damage.
Liability pays others when the insured is legally responsible for a boating accident. The outline names three typical liability coverages:
Operations liability: damage or injury the insured causes while operating the boat, such as smashing a neighbor's dock, pilings or another boat.
Passenger liability: injury to the insured's own passengers. A guest thrown against the rail by a careless turn can sue and be paid under liability.
Flotilla liability: the outline lists this name without defining it, so learn it as one of the three listed terms.
Medical payments pays medical bills for the insured and passengers after a covered accident, regardless of fault. It fits a guest who slips on a wet deck when no one was negligent. Liability needs legal responsibility; medical payments does not.
Physical damage protects the insured's own boat. It covers a collision with another boat or an object, even a submerged log the insured should have seen, regardless of fault, and sudden losses such as theft from a slip, lightning or vandalism in storage. It does not pay for maintenance, wear and tear, or gradual weathering and deterioration, because those losses are expected, not accidental.
Valuation: on an agreed value basis the amount is fixed when the policy starts, so depreciation is not deducted. Example: a boat insured for an agreed $60,000, with a $1,000 deductible that applies to total losses, sinks when its market value has dropped to $48,000. The insurer pays $60,000 − $1,000 = $59,000. An actual cash value basis would start from the lower market value instead.