Boat Insurance: I don’t get my boat until May. Why insure now?
Boat insurance is not mandatory in Ontario and you have the option of choosing to insure your boat or not. However, what catches a lot of boat buyers by surprise is that when you’re financing the purchase of your boat, you must have it insured. This topic is a touchy one and quickly becomes a bone of contention when you don’t take delivery of your boat until May but need to insure it as of February. So why do you need to insure the boat when you’re financing and why so early?
To put it bluntly, because the bank says so. Let’s say the bank loans you $30,000 to buy your boat with the agreement that you will pay $400 monthly principal and interest to pay back the loan. The bank holds your boat as security. In other words they have an ‘interest’ in your boat and if you don’t make the payments they can repossess the boat and sell it to cover the amount they loaned you. Since they have the option of repossessing your boat if you default on the payments they want to make sure that the boat remains in good shape or, if it’s stolen, insurance money is available to pay them back. In fact, if the insurance company is settling your claim by giving you money for the boat, the insurance cheque would be payable to both you and the bank. It’s like if you had a fire in your house. The cheque the insurance company sends you is made out to you and the bank that holds your mortgage. If the boat is stolen, you are responsible for paying off the bank loan with the insurance money because the bank is not going to hold the loan now that the boat is not around to serve as its security. Even if you don’t take delivery of the boat until May, as soon as you sign those loan documents, the bank funds the loan (ie. sends the money to the dealer) and the boat is yours even if it’s sitting in the dealer’s storage building for months.
While this may seem like an extra expense, and one the bank is imposing on you, in the case of financing you really aren’t given the option not to insure. Remember that the insurance premium is only a small portion of the costs of boat ownership and it provides a valuable service to you.