There are a lot of things to think about when you’re buying a boat and insurance is one that is frequently put on the back burner, not only because it’s just ‘one more thing to do’, but because it’s an additional expense boat buyers don’t like to think about or don’t take into account in their budgeting. No, 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 who 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.
The most important thing you can do when buying your boat is make sure you understand all of the requirements and costs involved. We see too many buyers scrambling at the last minute to arrange insurance to finalize a loan. Ask the questions and give yourself lots of time.