In the middle of July in most parts of the United States, peopleare taking to the water to cool off. They may be sailing, fishingor just cruising the harbor. They may be in anything from a kayakto a 500-foot yacht. An important consideration for all of theseboat owners is whether they have the right insurance coverage inplace.

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Agents and brokers can help by reviewing the customer’s needsand pointing out some coverage issues that the customer may not beaware of, advises Michael Terrier, senior yacht underwriter andyacht department manager for the Maritime Program Group, Westbrook,Conn.

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[Related: Boat insurance 101]

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Ideally, your client will call you before buying the boat. Ifyou can, Terrier recommends that you talk to the client about thesize of the boat and the engine being considered. “First time boatowners may buy a boat that does not suit their needs or is largerthan they can safely operate,” he explains. Generally, a boat is 26feet long or smaller, and a yacht is anything over 26 feetlong.

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Agents also should educate their clients about the realities ofoperating a boat before they make the purchase. “It’s notlike driving a car,” Terrier says. “Navigation is very different,and there are hazards that you can’t see, for example, the tides,the current, rocks and sandbars.”

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Boat-insurance-on-business-card-man's-hand-boat-in-water-background-shutterstock_260681252-igor.stevanovic

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(Photo:Shutterstock/igor.stevanovic)

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Insurance coverage is different, too, Terrier points out, withthe main difference that a boat or yacht policy is not anISO policy. Most homeowners have an ISO HO3, policy, which is “veryregulated,” and rates must be filed with the state department ofinsurance. Describing boat coverage as “the Wild West ofinsurance,” he explains that every carrier has its own policy form.Terrier underwrites marine insurance primarily for New HampshireInsurance Company (NHIC), an AIG Company, which has five separateforms, all slightly different, depending on the lines ofbusiness.

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Terrier finds that non-marine insurance specialists often focusonly on the price, not necessarily the nuances of the policies. Herecommends that agents and brokers work with a specialist who knowsthe ins and outs of the forms and understands each carrier’sappetite for risk to help the boat owner make an informeddecision.

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Here are 15 coverage issues that Terrier suggests agents andbrokers discuss with their clients to ensure that they have thebest coverage for their needs.

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Homeowners-insurance-policy-document-with-compass-shutterstock_17551162-Feng Yu

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(Photo: Shutterstock/Feng Yu)

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1. Homeowners policy limits may be too low.

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The standard HO3 policy covers boats under the personal propertysection first and includes special limits on liability: $1,500 onwatercraft of all types, including their trailers, furnishings,equipment and outboard engines or motors.

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But that’s a very low, aggregate limit, Terrier says. “Two nicekayaks and a trailer could easily be worth more than $1,500.”

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Boat-on-side-of-road-after-wind-hail-storm-AP_080522030750-Laramie Boomerang-Andy Carpenean

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(Photo: AP/Laramie Boomerang, AndyCarpenean)

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2. Windstorm and hail damage is limited.

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HO3 also provides named peril coverage with many terms andconditions. Terrier provides the following example: Under the HO3,you would have coverage for windstorm or hail only while the boatand its equipment are stored inside a fully enclosed building—notwhile the boat is in the water or in your driveway.

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A boat or yacht policy, on the other hand, would providespecific coverage wherever the boat is located.

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Pickup-towing-boat-on-trailer-shutterstock_5331601-Ivan Cholakov

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(Photo: Shutterstock/IvanCholakov)

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3. Homeowners’ policies have no theft coverage for boatsaway from the residence premises.

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If an owner is taking the boat to another location to launch it,leaves it on the trailer to go into a restaurant to have lunch, andit’s stolen, there is no coverage for theft because the boat isaway from the premises covered by the homeowners policy.

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This exclusion also applies when the boat is tied up at thelocal marina.

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Man-with-2-daughters-&-dog-on-JetSki-shutterstock_79569691-SUSAN LEGGETT

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(Photo: Shutterstock/SUSANLEGGETT)

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4. The liability section of the HO3 doesn’t coverpersonal watercraft, like Jet Skis.

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Liability under the homeowners policy depends on severalfactors, Terrier says, for example, whether the vessel is a sail orpower boat, the length of the boat, the type of engine (inboard,outboard or inboard/outboard), the horsepower, or whether it’sowned, rented or borrowed. He suggests that agents create a flowchart and go through it with their clients.

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Many people believe their personal watercraft is covered bytheir homeowners policy. The watercraft’s engine does fit thedescription of an inboard engine but it has more than 50 horsepowerso there is no liability coverage.

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Editor’s Note: Although personal watercraftare generally referred to as “jet skis,” Jet Ski is the brand nameof a personal watercraft manufactured by Kawasaki. Other well-knownbrands include Sea-Doo and Yamaha Wave Runners.

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3-dolphins-swimming-underwater-pleasure-boat-in-background-shutterstock_120446047-Willyam Bradberry

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(Photo: Shutterstock/WillyamBradberry)

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5. Fuel spill liability or marine environmental damagemay not be covered.

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HO3 Homeowners policies may not cover marine environmentaldamage from watercraft. “This is a significant issue in certainparts of the U.S. and the Caribbean due to coral reefs andprotected areas,” Terrier points out. Each boat policy has its owndefinition of marine environmental damage and limit of coverage.States have right to recover for damage caused by boat owners, forexample, from dropping an anchor on a coral reef or runningaground.

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Agents should explain to their clients that they don’t have tobe in a fragile environment to be liable for a fuel spill. A fueltank can leak while tied up at a dock or while the tank is beingfilled. The boat policy would provide coverage for sudden andaccidental fuel spills.

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Boat-leaving-harbor-RDonlon

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(Contributed photo: R. Donlon)

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6. Coverage for use by others depends on the policylanguage.

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Generally, the boat policy provides a private pleasure usewarranty, Terrier says. If the owner allows the boat to bechartered, the carrier needs to be notified in advance, in writing,so the carrier can issue a special endorsement. Otherwise, anycharter, lease or commercial use isn’t covered under the boatpolicy. The policies that Terrier provides don’t considerentertaining business clients or participating in a fishingtournament to be commercial use.

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Some owners put their boats in a fleet to be rented whilethey’re not using them, which is known as a “bareboat charter”because the boat is being chartered without any crew. A captaincharter includes a crewmember or captain to navigate theboat.

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When working with clients, Terrier recommends that agents andbrokers ask specifically whether the owner plans to use the boatcommercially. Even one charter without notifying the carrier isenough to void coverage. Leasing the boat to another person alsowill void coverage.

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Borrowing the boat, however, is covered under the boat policy ifit’s used with the owner’s permission, and the policy allows it.Terrier explains that the definition of named insured or aninsured person usually covers the boat owner, anyone using boatwith the owner’s permission or a paid captain and crew if crewcoverage is added. He notes that some carriers have a minimum agelimit for boat operators in their policies.

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Terrier also warns agents and brokers to be aware that somepolicies will have a a named operator warranty,although “this is more common with high performance boats.” Thesepolicies provide no coverage for allowing anyone other than namedoperator be at the helm at all times.

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Map-east-coast-US-shutterstock_1920695_Condor 36

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(Photo: Shutterstock/Condor 36)

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7. There is no coverage outside the navigationlimits.

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Boat policies require territorial limits of coverage, Terriersays, and the policies include a warranty of navigation. That is,the boat owner agrees, as part of the insurance contract, to staywithin a certain geographical area with the boat.

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“Boat owners often may say they’re not going to go south ofMorehead City, N.C., but they change their minds and decide totravel as far as St. Simons Island, Ga.,” Terrier notes. “If yourboat is damaged, even though the damage is not subject to anexclusion, you have no coverage because you’ve breached thewarranty of navigation.” He adds that this situation happens on apretty regular basis.

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A better policy will have a Held Covered clause, which means ifthe navigation warranty or lay-up warranty (see No. 8) is breacheddue to circumstances beyond your control, the policy will remain ineffect providing written notice is given to the carrier regardingthe breach as soon as possible.

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Boats-in-shrink-wrap-with-snow-shutterstock_129244289_Maria Dryfhout

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(Photo: Shutterstock/MariaDryfhout)

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8. Lay-up warranties require the boat to beinoperable.

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Depending on where the boat is located, the policy may requirethat the boat be “on lay up” for the winter. If the boat isprimarily kept in an area subject to ice and snow, “we assume thatyou’re not using the boat in the middle of January,” Terrier says.If you don’t winterize the boat or if you use it for any reasonduring the lay-up period, your policy won’t cover any damage. Somepolicies require the boat to be hauled ashore during lay up.

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He also advises agents and brokers to find out whether theirclients are “snow birds” who are likely to change their minds anduse their boats in a warmer location in the winter months. This toocan void the lay-up warranty.

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Front-view-businessman-offering-pen-to-sign-document-focus-on-text-Terms-and-Conditions.shutterstock_240297472-Gajus

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(Photo: Shutterstock/Gajus)

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9. The boat owner can’t waive the rights of thecarrier.

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Terrier reminds agents and brokers to read the boat policycarefully. Owners can’t waive any rights that belong to theinsurance carrier. “But you have to sign annual dockage agreementsand storage agreements,” he says, which often include exculpatorylanguage, including waivers of subrogation.

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He notes that some are fair while others are very unfair to theinsured. The better agreements provide that if the marina orboatyard damages your boat due to negligence, it will pay forrepairs. In other contracts, the marina disclaims responsibilityfor anything—including gross negligence—even if its employees picka boat up on a lift and drop it.

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Some boat policies state that you can void coverage by signingthe agreement, Terrier says, but you have no choice if you want todock or store your boat. The New Hampshire Insurance Company policyallows a boat owner to sign an agreement for hauling, mooring,storing or launching a boat without voiding coverage.

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Sailboats-on-trailers-shutterstock_92062769-Chuck Wagner

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(Photo: Shutterstock/ChuckWagner)

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10. Most policies don’t automatically cover boattrailers.

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Most boat owners pay attention to maintaining their vessel butthey often forget that they also need to properly maintain thetrailer, Terrier says. “It’s subject to a lot more wear and tearthan you think, especially from salt water.” He sees lots of frozenbrakes, flat tires and bad bearings. The majority of boat policiesdon’t include coverage for a trailer, but it can be added.

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“You also need the right tow vehicle, and you have to have itsituated on the trailer correctly,” Terrier notes. “Even though atrailer is designed to hold a 25-foot boat, not all 25-foot boatssit on the trailer the same way.” The balance has to be right, andthe rollers have to be right. If the boat isn’t situated on thetrailer correctly, it will not tow safely.

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Terrier provides this basic rule for agents and brokers: If thetrailer isn’t scheduled, it generally isn’t covered.

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Ken-Fine-pours-hot-coffee-in-galley-of-live-aboard boat-AP_061215029226-John Froschauer

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(Photo: AP/John Froschauer)

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11. Owners who live aboard their boats full-time don’thave homeowners coverage.

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There are two groups of people who live aboard their boats,Terrier explains. The first group includes the people who use theboat as a summer cottage. They have the boat docked at a marina,drive down on Friday, stay on it for the weekend, and go home onSunday or Monday morning. The people in this group have a permanentresidence that is covered by a homeowners policy.

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The other group are people who have sold their homes, put theirpossessions in storage and live on their boats permanently. Thetypical boat owner in this group is a retiree couple, empty nesterswho have decided to travel without being tied down to a house. Theyno longer have a homeowner’s policy, but they often forget thatthey do have possessions that need coverage.

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“The boat policy doesn’t provide coverage for personalliability, such as defamation, false arrest, or dog bite claims,for example,” Terrier points out. There also is no coverage forpersonal property off the premises—all those items in storage, forinstance. Most boat owners who live aboard buy an endorsement thatadds personal liability coverage back on, he says.

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Another major concern for live-aboards is the effect of coldweather. “You usually have 30 amp service going into the boat, butyou’re used to 200 amp service in your house,” Terrier observes.When you add two or three space heaters, a microwave, a toasteroven, and other electronic devices, you have a high risk for fires.In addition to the amount of power they draw, space heaters couldtip over while the boat is rocking—also a fire hazard.

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Dirty-looking-sailboat-in-need-of-repair-shutterstock_198393407-Roy Pedersen

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(Photo: Shutterstock/RoyPedersen)

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12. There is an exclusion for boats that aren’t‘seaworthy.’

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Terrier points out that in most cases, boat owners have a surveydone before buying the boat, similar to a home inspection. Evenwhen the boat owner doesn’t ask for a survey, if the purchase isbeing financed, the lender will require one. The survey willidentify all possible problems with the boat that should berepaired or replaced, which helps to ensure that the boat is ingood condition and safe to operate.

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Many insurance carriers exclude coverage if a vessel isn’tseaworthy, but they don’t really define the term, althoughthere is an implied doctrine of seaworthiness, Terrier says. If theboat leaves the dock and is damaged, the boat owner has no coverageif the boat is deemed “unseaworthy” by the carrier. “Does‘unseaworthy’ mean that the horn doesn’t work or does it meansomething more significant, like a like a corroded-through hullfitting?” Terrier asks. He has found that the better—and morecostly—policies have more a generous definition. But whateverpolicy your client chooses, read the definitions and exclusionscarefully so you understand what is and isn’t covered.

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Power-boat-speeding-with-wake-shutterstock_15749305-Beneda Miroslav

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(Photo: Beneda Miroslav)

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13. Uninsured boaters coverage may depend on physicalcontact with another boat.

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Uninsured boaters coverage is different from uninsured orunderinsured motorist coverage on your auto policy, explainsTerrier. The similarity is that the policy pays for medicalexpenses for people on board the boat who are physically hurt dueto someone who has no insurance or can’t be found. But uninsuredboater claims are not very common, he says.

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“Some boat policies require physical contact between two boatsto trigger coverage, but the NHIC policy doesn’t read that way,”Terrier notes. This is a common scenario: A speeder goes by, throwsa wake, a wave washes over the deck and someone on the boat fallsand breaks a leg. The person in other boat keeps going. The NHICpolicy, and other similar policies, would provide coverage, butsome lesser policies won’t. “The limit of liability is usuallystandard and preset,” he explains, “based on protection andindemnity [marine liability] limits, but the boat owner can buy up.The larger the boat, the larger the limit.”

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Young-woman-at-wheel-of-boat-with-wine-glass-shutterstock_58347451-Ventura

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(Photo: Shutterstock/Ventura)

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14. Illegal acts, including boating under the influence,are excluded.

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Most boat policies will not pay for loss or damage caused by thedishonest, illegal or intentional acts of any “covered person.”Although the policy generally doesn’t define illegal acts, itdefinitely covers boating under the influence (BUI) of alcohol orother drugs.

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According to the U.S. Coast Guard, the use of alcohol is involved in aboutone-third of all recreational boating fatalities. “Some carriersexclude any liability for damage caused by someone operating awatercraft under the influence, Terrier says. The exclusion undersome policies is for a blood alcohol content or breath alcohollevel equal to or in excess of the one for motor vehicle operatorsin the state in which you reside, not where you’re operating theboat Currently, the legal limit is 0.08 in all states.

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Couple-reading-document-in-office-with-agent-shutterstock_85847173-Goodluz

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(Photo: Shutterstock/Goodluz)

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15. Exclusions vary by policy.

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Terrier points out that yacht and boat policies fall into thecategories of good, better, best, depending on premium, policylimits, coverage, available endorsements and exclusions. Somepolicies are written as “actual cash value,” (ACV) and pay forreplacement costs less depreciation at the time of the loss. If theboat sinks and is declared a total loss, the value would bedetermined by checking used boat price guides.

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A better policy would provide for recovery on an “agreed value”basis, which means that the boat owner and insurer agree on thevalue of the vessel and there would no deduction for depreciation.“Most policies have some form of depreciation for outboard motors,sails, carpeting, and furnishings,” Terrier says. Some policiesexclude all mechanical breakdowns to machinery while othersuse actual cash value from the date the owner takes delivery of theboat on the paint, finishes, or gel coat, for instance.

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He add that, unlike car insurance, if the boat has an enginefailure not caused by wear and tear or another excluded condition,it would be covered under a better policy. A lower priced policygenerally provides for ACV on the hull and personal effects, andprobably excludes mechanical breakdown.

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As with most insurance policies, “the devil is in the details,”agrees Terrier. “The best thing agents and brokers can do for theirclients is be sure everyone understands the details beforethey purchase or renew coverage.”

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[Related: Boat insurance 101]

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Rosalie Donlon

Rosalie Donlon is the editor in chief of ALM's insurance and tax publications, including NU Property & Casualty magazine and NU PropertyCasualty360.com. You can contact her at [email protected].