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What happens to your car insurance when a bad driver moves in?



Young woman moving inMore and more of us are living with roommates. U.S. Census Bureau data show that one out of every eight homes is now inhabited by two or more people who are not related -- an increase of 5 percent from 2000 to 2010.

If it's time for new roommates, choose carefully. While you will want to make sure they do their share of the housework and pay the rent on time, you might also want to check out their driving records.

Car insurance companies assume that roommates borrow cars, regardless of whether you give them permission or not, and their poor driving records can become your problem. A roommate with a DUI or other serious offense could result in a higher premium for you and, in a worst case scenario, leave you on the hook for damages done by your roommate.

Should I tell my insurer?

While insurance companies usually require all licensed family members to be listed as drivers on a policy, non-family members are more of a gray area.

The rules vary by state, insurance company and whether roomies have their own insurance. That's why you should ask what the rules are when you compare insurance companies while shopping for a new policy.

Insurers are in the business of assessing risk and to do that properly, they must have a complete picture of your household. If you are applying for a new policy, and do not list your roommate, your insurer may consider it fraud and later deny a claim or cancel your policy.

Opinions vary on whether it is absolutely necessary to inform your insurer of a new living situation if you both have car insurance, but most experts highly recommend giving your agent a call. This is especially true if the roommate is going to drive your car, even occasionally.

"Even if it's just a roommate, you should notify your insurer to verify whether the person has to be put on the policy as a driver or not," says Penny Gusner, consumer analyst with Insure.com.

The bad news is that if your new living partner has a poor driving record, for example a DUI, your insurer is most likely going to require you to list the person on the policy or formally exclude him or her. Neither of these options is ideal.

"If the person does have to be added to the policy, then he or she will be rated on their DUI, which will cause your car insurance rates to increase significantly. Increases of 40 percent to over 100 percent are common when a DUI is involved," says Gusner.

Insurance follows the car

Insurance sticks with the car. This can lead to a number of different scenarios when it comes to roommates. Consider for instance, if the roommate has insurance, but you didn't add him to your policy.

 "Car insurance follows the car not the driver so you're not only lending your car, you're also lending your car insurance," says Loretta Worters, vice president with the Insurance Information Institute. As long as you have given your permission for someone to drive your vehicle, you are taking a risk with your policy.

Basically, when you hand over your keys, your car insurance becomes the primary coverage. This means that if your roommate is involved in a car accident while cruising your ride, your insurance will pay and you will fork out the deductible. The pain doesn't stop there; the claim goes on your insurance record, most likely resulting in a rate increase.

When your policy limits have been reached, your roommate's insurance will kick in as secondary coverage. If your roommate is uninsured, you could be in for a world of hurt, as the victims of the accident would have the right to come after your assets. Your home, car and other belongings would be up for grabs.

If your roommate took a joyride without your permission and crashed your car, his or her insurance would be considered primary and yours would only kick in if the roommate's coverage limits were reached or if he or she were completely uninsured.

Luckily, (for you anyway) if your roommate has a DUI on his record there is a good chance he will have insurance. According to Kristofer Kirchen with the First Florida Insurance Network of Central Florida, "Most states require a person convicted of a DUI to have a policy with an FR-44 endorsement for at least three years. Insurers verify to the state that the person has the required limits. In Florida it is 100/300/50. These policies are not allowed to be cancelled and are required whether or not that person owns or drives a vehicle."

Remember, most insurers will assume that your roommate has your permission to operate your vehicle unless it is very clear that you denied permission. This is where an exclusion comes in handy.

Restrictions and exclusions

Excluding a driver from your policy means that you are guaranteeing the insurance company that he or she will never drive your vehicle, effectively removing the potential for risk. It also means that your roommate is completely uninsured if he does end up in the driver's seat.

While excluding your roommate will ensure that your premiums don't shoot up due to a poor driving record, if you let your roommate  driveyour car anyway, you (and your roommate) will be on the hook for all costs. Your insurer will deny any and all claims, including liability issues. A major accident could easily bankrupt most people.

Excluding a driver requires paperwork and a signature so contact your agent if you want to keep your roommate off of your policy.

Some states (Michigan, Kansas, New York, Virginia and Wisconsin) will not let you exclude a driver from your policy.

Even if you decide not to exclude your new best friend, not listing your roomie on your policy can have repercussions. While drivers listed on your policy are covered without restrictions, there could be restrictions for non-listed drivers:

Double deductible -- Your collision deductible will be doubled if you are not at the wheel. This could push an already high $1,000 deductible up to a budget busting $2,000.

Drop down Limits -- Some insurers drop your coverage levels down to state minimums for non-listed drivers. State minimums are often low, which could leave you on hook for the balance.

No collision -- While your insurer will cover any liability claims, it will not pay to fix your vehicle. This can mean an expensive repair job is on you.

What is my best option?

Like most things in life, there is no right answer. The best option for you will depend on a variety of factors, including just how bad of a driver you have chosen as your new living partner.

A frequent driver of your car should be on your policy, but it could come at a price, "If anyone is using your car on a regular basis, the person should be on your policy. If he or she is a high-risk driver with a history of claims, a DUI or moving violations, your insurer may increase your premium or not sell you a policy, unless you exclude the person," warns Carole Walker, with the Rocky Mountain Insurance Information Association.

Occasional drivers should be covered by your policy, regardless of whether they are listed drivers but if an accident occurs, your insurance will take the hit and so will your rates.

If the additional cost of adding them to your policy is just too much, excluding them is your best option. Under no circumstances, including an emergency situation, should they drive your car. "If the high-risk roommate is involved in an accident while driving your insured vehicle, the insurer will not pay for any damages," says Walker.

Walker offers this advice, "The bottom line is to be very careful about turning over your car keys and consider taking the extra step of excluding someone who may be a good roommate, but a bad driver. Otherwise you could end up paying for it through higher premiums or (if an excluded roommate drove anyway) no coverage in an accident."

A spouse is a completely different story

If you're married to the bad driver, your rates are headed up, and nothing short of divorce is going to help. According to Tammy Hoffman, with FHC Insurance Agency in Florida, "The majority of insurance companies will not allow you to exclude a spouse so they must be added to your policy."

A DUI is no laughing matter when it comes to a rate hike, but the added financial burden doesn't stop with a premium increase. Thomas Simeone with Simeone & Miller lists off the additional costs for the offender: "Fines run anywhere from $250 to $1,000, your license will be suspended for six months to a year and lawyer fees (and you should get a lawyer) could range from $2,000 to $5,000."

A DUI will be on your spouse's record for at least three years and it could range up to 10 years, so expect to pay a higher premium for many years to come.

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