Driving a car that belongs to Mom and Dad? How do you insure
The question is a common one, and the situation is tricky, says
CarInsurance.com consumer analyst Penny Gusner.
If you are living with your parents, you simply could be a
listed driver on their policy. Usually a
policy covers all the licensed drivers in the household who have
permission to drive the car.
"It gets difficult when the driver of the car isn't on the title
and doesn't live with the title holder," Gusner observes.
What you need in these cases is "insurable interest." Having
insurable interest in property, such as a car, means you would
suffer a financial loss if it were damaged or destroyed. Insurance
companies require you to have insurable interest to take out a
policy because without it you would have no incentive to protect
the insured item.
You might even be tempted to damage it on purpose to collect the
insurance payout if you were a real jerk.
That's why insurance companies generally require you to own a
car to insure it.
Allowing someone to insure a car owned by someone else would
also allow a person with a bad driving record to ask a friend with
a good driving record to insure the vehicle, points out Karl
Newman, president of the NW Insurance Council in Seattle. That
would hide the real risk of the driver from the insurer.
"Hiding the real risk then means not enough premium is charged
to cover future claims, and eventually this would drive up rates
for the good drivers insuring with that company," he says.
Insurance companies also prefer that any listed drivers live in
the household.The exception is if you're still in college.
Esurance, for instance, lets policyholders list full-time
college students and their vehicles, even if the students are
studying in another state, says Esurance spokesperson Danny
If you're out of college, on your own and driving your parents'
car, you have two main options:
1. Buy the car from your parents.
"The cleanest solution is to transfer the title to the young
adult," Newman says.
Whether you buy the car, or your parents give it to you, having
your name on the title will enable you to purchase your own
Newman recommends this route because:
- It's the least complicated.
- As the policyholder, you can begin building your own
insurance track record.
- If your parents are no longer on the car title, they no
longer have any liability. Then you're free to purchase the
appropriate amount of coverage for your needs, Newman says.
Chances are you have fewer financial assets to protect than your
If your parents simply add your name on the title but still
retain partial ownership of the car, they can still be held liable
if you cause an accident that exceeds your policy limits. This is
something your parents should keep in mind.
"If they wish to keep their names on the car title and the child
gets the insurance for it, then it's a good idea for the parents to
be added to the policy as additional insureds, so they will be
notified of any insurance changes, such as a lowering of limits or
cancellation of the policy," Gusner says.
2. Search for an insurance company that will consider your
"It is possible to insure a car you don't own, but you have to
search for the few companies that allow it," Gusner says.
Most companies, such as Esurance, require you to own the
Or your parents can search for a company willing to insure the
car and list you as the primary driver, even though you don't live
with them anymore.
"Some companies will list the young adult as the 'named insured'
on the policy with the parents listed as having the financial
interest," Newman says. "Some companies will only issue a policy to
the legal owner with no exceptions. Other companies will insure the
car, list the young adult driver and charge a rate based on the
primary driver's [the young adult's] age, driving record, mileage
to work, garaging location, etc."
Honesty is the best policy
Above all, be honest with the insurance company, Newman
"The best first approach is full disclosure," he says. "A lot of
times folks think they can save a few dollars today by not
disclosing everything, and that can be really dangerous. Part of
the contract you sign says you are going to provide full
If you try to pull fast one on the insurer, you might find
yourself without coverage and be on the hook for tens of thousands
of dollars if you cause an accident.
"I've seen it happen, and it's very unfortunate," Newman