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It's one of the most important things associated with owning a boat, but insurance policies can be confusing.  Here's what you need to know before you sign on the dotted line.

1. What should a boat insurance policy include?

Coverage for the boat, engine, boating equipment, dinghies, and trailer. Medical payments coverage for onboard injuries and liability coverage for any property damage or bodily injury you are legally responsible for.

2. What does "Actual Cash Value" or "Agreed Value" mean?

Policies are written as either "Actual Cash Value" or "Agreed Value."

Actual cash value:

For total losses, your payout is based on the current market value of your boat. For partial losses, you receive the value of the loss less depreciation and the deductible.

Benefit:  You pay less up front.

Downside:  You pay more to get back on the water after a loss.

Agreed value:

For a total loss, you are paid an agreed policy value, which means you know how much you'll get in the event you lose your boat. Partial losses are subject to the deductible and some items will also be adjusted for depreciation. All losses on boating equipment are replaced "new for old" after the deductible. For example, if your 5-year-old GPS is stolen, it will be replaced with a brand new one (of like kind and quality).

Benefit:  You pay less out of pocket in the event of a partial loss and you know exactly how much you would receive in the event of a total loss.

3. Is the trailer covered?

If your boat has a trailer, don't assume it will automatically be covered under your boat policy. Physical damage to the trailer is covered under the policy; however, third-party property damage or bodily injury that happens while trailering is not. This is usually covered under your auto policy — check with your auto carrier.

4. What happens if the owner isn't driving and there's an accident?

If the boat is being operated by a family member or other person using the boat with your permission, and without compensation, they are covered under the conditions of the policy. If you "rent" or "lease" your boat to others, then coverage does not apply. Also, liability coverage is not provided for a paid captain or crew.

5. Additional options are available:

Personal effects coverage:

For non-boating equipment such as personal computers or clothing, and for boat-related items not considered boating equipment such as fishing or watersports equipment.

Depreciation waiver:

For boats less than 10 years old, you can eliminate any depreciation that otherwise would have been applied to a claim.

Ice and freeze damage:

Where freezing is a common occurrence, this endorsement protects boats against damages that may occur if the boat is not properly winterized.

Guide coverage for boats under 27 feet:

For those operating a fishing guide service, make sure you are protecting your business and clients with the proper coverage.