Can I buy insurance for someone else’s car?

Insurance Q&A: “Can I buy insurance for someone else’s car?”

Most of us don’t enjoy buying insurance for our own property, let alone someone else’s belongings. But the fact is it may be quite necessary to obtain insurance coverage for someone else’s car.

When is this necessary?

Vehicles are expensive! And so is the rate at which we’re meant to insure them. But sharing is caring, and that can be necessary when someone has to get from point A to point B. The situation above may arise any time a teenager asks to borrow the family car. You may also be given access to a vehicle by a friend or relative if you don’t have one yourself at that moment and need to get to the office on time for work.

Technically, drivers who takes out a loan or leases a car is buying insurance for someone else’s car: the bank, credit union or leasing company (loss payee). The vehicle title is essentially held out of reach until you finish paying for the car.

These institutions really ‘own’ the vehicle until it’s paid off. Don’t believe us? Stop paying the note and see how long the car sits in your driveway.

Also, purchasing rental car insurance constitutes insuring someone else’s property.

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What are the rules?

1. You need to have permission/authorization from the property owner to obtain insurance.

Without going into too much legal detail, you cannot just go around buying insurance for other people, you won’t be given that sort of power easily. That’s a serious decision that requires both parties involved. Doing so would be like trespassing on private property – you want to make sure you have the owner’s permission so you don’t get into trouble. Most insurance companies are going to need to know why you’re trying to take a policy out on a car you don’t own.

2. The owner has to be the benefit of the insurance (or any other insurable interest, i.e. the bank that actually holds the note or a leasing company).

The person or entity that has financial interest, the legal owner of the property (who would lose out if the property was damaged) has to be listed on the property as the beneficiary of funds (loss payee) on the policy. You can’t take out a policy on your friend’s car and collect the money if it’s damaged; the money paid on a loss has to go to your friend or the institution who holds the note on the vehicle. Those types of decisions aren’t made by you, or your friend. Insurance companies are not going to allow someone who doesn’t own the vehicle to collect money on it.

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What about liability-only car insurance?

A named non-owner auto insurance policy may be for you if the vehicle in question is not valuable enough to require full coverage (comprehensive and collision), isn’t being leased, or has no other additional interest.

The named non-owner policy is a liability-only policy that covers an individual who drives another person’s car from time to time. This policy comes in handy for those who regularly rent cars as well.

Note: If you are provided ‘regular’ use of a vehicle, insurers typically demand you be listed as a driver on the policy that covers the vehicle. Regular use may be described as driving the vehicle at least once per month.