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Insuring another’s car to lower rates is fraud


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Question: Do insurance companies allow you to put someone on your policy to help that individual save money?  My sister has bad credit and a so-so driving record while I have excellent credit and a clean driving record.  She would like me to insure her car under my policy to get better rates, but I don’t know if I should.

Answer: Don’t do it. Placing someone’s car on your policy just to save that person money is a very bad idea.  One, in fact, that could get you in trouble with both your car insurance company and the state.

You can’t insure just any car

To insure a car, most car insurance companies will require you to have an insurable interest in it. This means you would be affected financially if the car were damaged or totaled.  Thus, typically, only car owners, co-owners or lienholders have an insurable interest in a vehicle and can place car insurance on it.

There are some car insurance companies that will allow you to insure a car you don’t own; however, you must still be insuring it for the right reasons. 

For instance, you may find an insurer that will allow you to insure a car you don’t own if someone (parent, friend, etc.) is loaning you their car on a long-term basis and you want to be the one responsible for the insurance on it. 

Even when this is allowed, the car owner would still have to be listed on the policy. This way if there were a payout, the car owner (who would be the one hurt economically) would be including in the claim settlement.

It’s called insurance fraud

What an insurer doesn’t want is for you to insure a car in your name in order to obtain cheaper insurance rates for the actual car owner, who is also the primary driver of the vehicle.

For example, purchasing insurance under your name for your sister’s car -- because you’re able to get much lower car insurance rates due to your good credit and excellent driving record -- would be considered misrepresentation, a form of insurance fraud.

Car insurance rates are calculated based on the risk posed by the drivers of the vehicle.  The risk is determined based on the information given to the car insurance company about who owns the car, who drives it, the annual mileage and other important rating factors.

When you give the car insurance provider information that makes it appear that the risks are lower than what they really are – by omitting information or giving false information – then you’re committing insurance fraud. 

Fraud penalties vary by state, but in many states (including New Jersey, where you live) it can lead to harsh fines and possible jail time.  The insurer itself will normally cancel your policy and leave you to look for new coverage, now with a cancellation on your record.

If you give the insurance company all the information on the situation, the insurance company would likely raise your car insurance rates to cover the advanced risk of your sister or choose not to offer coverage for the vehicle since it isn’t your car.

If there were a valid way for you to insure your sister’s car, such as you were co-owner of the car with her, the car insurance premium would still be affected by your sister's record because you’d still have to insure your sister as the primary driver of the vehicle.

Due to your sister’s less-than-stellar driving record and bad credit, your car insurance rates would rise once she was added to your car insurance policy. 

Other ways to lower rates

Instead of defrauding your car insurance company, which could lead to you losing your car insurance policy -- and being reported to the state to be penalized by it -- you should tell your sister it’s not an option. 

However, all is not lost for your sister.  There are ways that she may be able to lower car insurance rates on her own policy, including:

  • Comparison shop around for rates.  Car insurance companies rating systems vary dramatically. By comparing car insurance rates with multiple car insurance providers, your sister will be able to find an insurer that is pricing competitively for her particular risk factors.  She may be able to save hundreds of dollars, if not much more.
  • Take a driving course.  Some insurers will give a discount, typically around 5 percent, for drivers who take an accident prevention or defensive driving course. Ask the insurer before signing up for a class.
  • Low-mileage discount.  If your sister’s annual mileage is below the average, she could save money by telling her insurer and getting a discount.
  • Change coverages.  If the vehicle your sister is insuring is older, it may be time to drop comprehensive and collision coverages on it to reduce her insurance costs. (See "Is it time to drop comp and collision?")
  • Change deductibles.  If your sister keeps comprehensive and collision coverages on her vehicle but raises her deductibles, it can save her money -- if she has a way to pay the deductible after a claim. A high deductible she can't pay is pointless.

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