Z,
The oil gauge does not measure oil level, it monitors oil pressure. You can have a low oil level and yet still have great oil pressure, or you can have low oil pressure but oil level is spot on. If the oil pressure is too low you're going to need to find out why. The alarm staying on at idle speed, then going off when cruising does suggest low oil pressure; the oil pressure is lower when an engine is idling and the pressure gets higher when the engine speeds up.
As Pas mentioned you might seriously consider connecting a mechanical oil pressure gauge. You can also simply replace the oil pressure sending unit to see if that solves the issue - they do go bad sometimes.
One last thing, has the oil gauge ever worked since you've had the boat? If not, have a look behind the gauge panel to make sure the the wires are in fact connected to the gauge.
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