Liability coverage pays that which you are legally responsible to pay because you own and operate an insured vessel. But all liability coverage is not created equal. One thing you need to understand is the difference between watercraft liability and protection and indemnity, or P&I.

Watercraft liability is the more limited type of liability insurance, covering only bodily injury and property damage. You can purchase it in various amounts of your choosing, but regardless of the dollar amount, it will not cover you if, for instance, you have an oil spill or if your boat sinks, in which case you are required to clear the wreckage. These kinds of accidents are not uncommon, and they're costly, too. Also, watercraft liability usually covers only the market value of your boat – kind of like the Blue Book value on your car.

P&I, on the other hand, provides far broader coverage. Like watercraft liability, it covers bodily injury and property damage. It also includes coverage for you hired crew, wreckage, and negligence if your boat is not seaworthy. It pays for your defense if you are sued for damage, injury or death caused by your boat and for an amount awarded in a lawsuit up to the value of your policy. In the event of your boat's total loss, P&I covers the full amount you paid.

But even with P&I you need to compare policies among the various insurers. For instance, if you plan to tow skiers, you need to know if they are covered under the policy you are considering. Find out what is excluded before you sign the dotted line.

You also need to decide upon a dollar amount for your policy. Bear in mind that you are protecting yourself from damage claims, so your limit should take into consideration not only the worth of your boat, but also the value of your other assets – such as your home and savings.

- Linda Hoff