I have towed one boat before. I went on the assumption to go only as fast as you want the bow of the towed boat to hit your stern. For me that was no wake speed.

I keep a line configured as a “Y” at the top of my emergency box for quick use. Originally it was a 50’ rope, but I have one carabineer tied to each free end, a knot where the two arms join to the long leg, and another carabineer in the loop at the end of the long leg. I used it twice in one day a couple years ago. The first time was somewhat urgent as an older boat was taking on water through the transom bellows. Had I not had it already configured, they would have taken on more water. It was easy to snap the 2 arm carabineers to my stern tie down eyes and the other to his bow tie down and we were off. It was tough pulling at first, but I believe some water actually flowed out of the bellows during the 2 mile tow. Right after I got him to the ramp, we resumed tubing only to find a couple in a brand-new boat who couldn’t get their engine started. I pulled them about 6 miles to their trailer. (Months later it dawned on me that I bet it was their cut-off switch that got bumped which prevented them from getting it started. I bet they either didn’t know about the switch or forgot about it. I sure wish I would have asked them.)

Oh yeah, because the 2nd boat was a farther tow and less urgent, I extended the length of the leg with another rope. The 50’ rope configured like I have it makes the other boat a little over 20’ away. That is too close. I recommend a longer length, but don’t have a good feel for an optimal length. Perhaps having the Y pre-configured but adjusting the length of the leg with a secondary rope is a good way to vary the length to fit the situation as noted in the earlier replies.

Is anyone covered for towing damages by their insurance?

SB, are you referring to damages to your boat while it's towing, or damages to your boat while it's being towed? Or both?

If you have a yacht policy, the answer is "absolutely yes". Any other policy, "probably". It would have to be specifically excluded, and I highly doubt that it is.

Considering the USCG Rules of Navigation require you to render assistance, you could lean pretty hard on that if your boat got damaged while towing another. And if your boat got damaged while being towed by another party, you insurance would cover it since you were legitimately trying to mitigate your damages. The boat doing the towing would not have to pay, since again, he's under obligation to help, and not allowed to accept any payment.
But just leave it up to lawyers to ruin a good samaritan situation.

That said, I purposely look for boats to tow when we are out. It's just the right thing to do.

Another tip came from a friend when we were discussing this topic....

Use a floating line if possible to keep lines out of the props.

Good idea. Hadn't thought of that one. I have floating lines but they're nowhere as strong as my double braid lines.

Might be a better idea to tie one (or more) of those orange PFD's onto the line a few feet back from your boat to keep the line floating and also to mark where it is in the water. Just don't use the tow line to tie the PFD's, use their ties and/or straps to fasten them to the tow line. If you tie the tow line around a PFD you may never get it undone after the stress of towing has tightened your knots.