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UPDATED: Mar 13, 2020
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Car insurance can be an expensive purchase for many people. In order to cut down on the expense, some people might be tempted to purchase a policy with a friend and split the payments, or they might wish to take advantage of a family member’s lower insurance premiums. Unfortunately, this is usually not a good idea in practice; it can be considered insurance fraud and may lead to denied claims, canceled policies or even legal action taken against the policyholder.
How Car Insurance Works
Auto insurance serves to primary functions: protecting the owner of a vehicle from lawsuits after causing an accident, and repairing a damaged vehicle. Liability insurance pays for damages that a person causes to another person or property, whereas first-party coverage like collision or comprehensive pays for damage incurred to the insured vehicle. Due to the nature of car insurance, the owner of the insurance policy must also be the owner of the vehicle. Otherwise, insuring a car is a conflict of interests for the insurance company. This means that it is generally not possible to insure a vehicle that you do not own.
Liability rests primarily on the owner of a vehicle, not on the person driving it. This means that if you borrow a friend’s car and have an accident, your friend’s insurance will be responsible for paying the claim. The driver’s insurance is secondary. This also holds true for vehicles that are not insured: The owner of a vehicle is responsible for any damage that vehicle causes, regardless of who is behind the wheel.
If, during the investigation of a claim, the insurance company determines that fraudulent activity may have occurred on the policy, the claim will be delayed while the investigation is completed. In many cases, this will result in the claim being denied and the insurance policy canceled. After a denial, the vehicle’s owner is still responsible for paying damages out of his own pocket in addition to any fees or fines he might now owe to the insurance company or DMV.
Why can’t I put a friend’s vehicle on my insurance?
Whenever an insurance claim is filed, the insurance settlement will be paid to the named insured on the policy. If the named insured is not the owner of the vehicle, this can cause legal difficulties. For example, financed vehicles are actually co-owned by the owner of the vehicle and his or her financing company. Whenever a vehicle that has not been paid off is involved in an accident, the insurance company must protect the lien holder’s interests by issuing a two-party check or otherwise ensuring that the vehicle will be repaired.
Similarly, an insurance policy cannot be purchased by a friend or relative by a person who does not have financial interest in the vehicle. If someone is listed as a co-owner on the vehicle’s title, he has partial ownership of the vehicle and will be able to purchase an insurance policy to cover that car.
Therefore, unless you own or co-own the vehicle, purchasing an auto policy for that car is a form of insurance fraud. If the insurance company learns that the name on the title is not the same as the policyholder, the company may cancel the insurance policy or level fraud charges against the policyholder. This is not the same as being listed as a driver on a policy. If you frequently drive a vehicle that’s owned by another person, you can be added to his insurance policy as a driver. This will grant you unlimited access to the car without enabling you to receive claims payments. This way, a person who does not own the insured vehicle can still be covered in the event of an accident.
There are a few exceptions to this rule. For example, married couples may be able to claim their spouse’s vehicles on their insurance without being explicitly listed on the vehicle’s title. Additionally, certain types of commercial insurance policies may be more flexible about providing coverage to vehicles owned or operated within the company.
As a rule, the best way to deal with this situation is to ask the insurance company for available options. By being honest with the company, an insured can avoid any potential fraud. The insurance agent may even be able to suggest ways to reduce the insurance premiums so that the policy is more affordable for the vehicle’s owner. By taking advantage of insurance discounts, a driver can save money on car insurance without resorting to any dishonest or potentially illegal arrangements.