Unpaid boat insurance: when cover stops after a missed payment

An unpaid insurance bill does not end a boat policy on the spot. But when a missed payment is not put right in time, cover stops, and owners usually find out only after a loss. Most wordings deal with this in a short section on payment that few people read. Under German law, which applies to many policies for boats kept in Germany, the Insurance Contract Act (Versicherungsvertragsgesetz, VVG) draws a sharp line in sections 37 and 38: it matters whether the first payment is unpaid or a later one. That line applies to a sailing yacht laid up ashore just as much as to a motor boat on a pontoon or a jet ski on its trailer, because the payment rules do not ask what kind of boat it is.

For the first payment, typical German wordings say it is due without delay once the policy starts or the policy document arrives; where the cost is paid in instalments, often only the first instalment counts as the first payment. If it is not paid in time, the insurer can withdraw from the contract as long as payment is outstanding, and is not liable for a loss that happens before payment. Two conditions apply under the VVG: the policyholder must be responsible for the late payment, and the insurer must have pointed out this consequence in a separate notice in text form or in a conspicuous note in the policy document. Some wordings add a flat handling fee after withdrawal. Look in the contract for the exact due date and for that note.

Renewal payments follow a slower route, and this is where many owners misjudge the risk. A late renewal payment puts the policyholder in default without a reminder if the delay is their fault, but cover continues for now. The insurer then has to send a reminder in text form, which includes email, with a payment period of at least two weeks from receipt. Under section 38 VVG the reminder only works if it states the overdue amounts, interest and costs separately and names the consequences. If a loss happens after that period has expired while payment is still outstanding, the insurer is free from liability, and it may terminate the contract without notice.

There is one last door. Under German rules a termination for non payment becomes void if the policyholder pays within one month of it, or within one month of the deadline if termination was combined with the reminder. The contract then carries on. What that door does not open is just as clear: the insurer stays free from liability for any loss in the gap until payment. A storm on the mooring between the deadline and the payment therefore stays with the owner, for hull damage to the owner's boat as well as for liability towards a neighbour or the marina operator, even though the policy runs on afterwards.

Most gaps do not come from a lack of money but from the direct debit. Where a SEPA mandate is agreed, the account must hold enough funds on the due date. If a collection fails through no fault of the policyholder, for example a bank error, wordings usually treat payment as on time if it is made without delay after a written request. If collections fail repeatedly for reasons the policyholder is responsible for, the insurer may cancel the mandate and ask for transfers instead, and bank charges for the returned debit can be passed on. The classic case is a change of bank over the winter: the old account is closed, the mandate still points to it, and the reminder goes to an email address nobody reads.

What this means in practice: an unpaid insurance bill is not a loss, but it turns every loss into a question that has nothing to do with the boat. With a new contract, for instance after buying a boat, the window is short because the first payment is due straight away. Where the policy document differs from the application, German wordings often make the first payment due no earlier than one month after receipt, which leaves time to check it. With a running contract, the two week reminder period protects only the owner who actually reads the reminder. Readers insured outside Germany should check how their own contract and national law handle these points, because periods and conditions differ.