There may be times when you want to buy auto coverage for someone else. It’s sometimes possible to do that, but knowing when insurance companies will and won’t allow it may help you determine if it’s the right move.
Adding someone to your auto policy vs. buying a policy for someone
First, let’s be clear on the difference between adding someone to your policy, and buying a separate auto insurance policy for that person. It’s very common to add drivers and vehicles to an auto insurance policy. However, companies usually require that you own the vehicles in question and that the other people covered are family members or significant others living at your address. Not only will insurance companies allow this, but many offer discounts if you insure more than one vehicle with them.
Buying a separate auto insurance policy for someone is a little different. Usually in that case you’re not the owner of the vehicle. The person you’re buying coverage for might not even live in the same house you do. Some examples may include:
- You’re a grandparent, and you'd like to buy your grandchild a first car and the insurance to cover it.
- You're co-signing on an auto loan and want to help make sure the vehicle you’re promising to pay for (if the primary borrower defaults) has proper insurance coverage.
- The vehicle is paid off and you are co-titling it, and you want to protect its value because it’s partly yours.
- Someone has reached the maximum number of vehicles or drivers their insurance company will cover under their personal policy. (For many companies, four is the maximum.)
- You have a large family and buying a separate auto insurance policy for your youngest daughter might be the only way to pay directly for her insurance.
How states and insurance companies look at it
The first question some people have is: “Will my state let me buy insurance for someone else?” Generally speaking, yes. Although most states require that drivers be insured for liability (the damage or injury you might cause others while driving), most don’t require that the person who owns the car is the person who is insuring it. The bigger question is whether you can find an insurance company willing to sell you a policy for a vehicle you don’t own.
Auto insurance companies are not required to sell you coverage for someone’s else’s vehicle, and many either won’t do it at all or will only do it under certain circumstances—for example, if the person you’re buying the insurance for is a relative who lives under your roof. It also helps if you have what’s known as “insurable interest” in the vehicle. Insurable interest means that an accident involving the vehicle would cause you a financial hardship.
Why insurance companies are so careful to insure someone else's vehicle
The main reason insurance companies often turn down those who want to purchase auto insurance for another person is concern about insurance fraud. Unfortunately, there are people who will take out a policy on a car that isn’t theirs, then arrange for the vehicle to be wrecked or stolen so they can collect on the policy. That also means that insurance companies are extra cautious about paying claims on policies taken out by someone other than the car’s owner. Getting an auto claim settled and the money in the hands of the person who owns the car could potentially take longer and be more difficult.
A few tips for buying auto insurance for othersIf, despite the possible drawbacks to buying auto insurance for someone else, you still want to do it, here are a few tips. Be totally honest with your insurance company or agent about the reason or reasons you want to purchase a policy for someone else, and get written consent from the car’s owner, saying she’s okay with it. Before you buy, make sure you understand whether the company will add any special conditions or charges. Also, ask what issues might come up if, somewhere down the road, the car’s owner files a claim.
One of the great things about insurance is the feeling of security it can give you. Buying auto insurance for someone else can help you give a secure feeling to that person. But you’ll probably want to talk to your insurance company first.