Buying auto insurance can be a bit tricky at times, especially if there are special circumstances surrounding your vehicle and its ownership status. For instance, you might have a co-signer who'd be on the hook for any remaining balances if you wreck your vehicle. In other cases, a spouse could have their own insurance policy on the vehicle you're currently driving, despite having your own insurance.
While you understand the importance of having auto insurance coverage, you're probably wondering if a co-signer or lienholder needs to attach a separate policy of their own onto the same vehicle in order to cover their potential losses. The following helps shed some revealing light on this curious issue.
It's Simply Not Necessary
In spite of multiple parties having insurable interest (such as a car loan or a lien) in your car, it doesn't mean those parties can essentially double-insure your vehicle. For starters, you can't insure a vehicle you don't own or lease, which means that a co-signer or lienholder can't purchase a policy for a vehicle they have a financial interest in but no actual ownership of.
Secondly, there are other avenues that lienholders and co-signers can explore when it comes to receiving compensation for their losses. For instance, the co-signer or lienholder may end up recovering their damages by suing you in court. Lenders may also be covered under gap insurance, which helps bridge the difference between your vehicle's value and the insurance company's actual payout.
Double Insurance Often Equals Zero Payout
Like any other business, insurance companies are interested in generating profit while minimizing their losses. If an insurance company finds an opportunity where it doesn't have to pay out a claim, it'll likely take advantage of that opportunity. Bringing another insurance company into the fray over the same vehicle could be just the opportunity it's looking for to deny your claim or drop your coverage altogether.
When faced with a double-insured vehicle, it's likely that one of the insurance companies will try to shift the responsibility onto the other. This could quickly result in a situation where neither company is willing to pay out the claim. You could be forced to sue one or both companies for compensation – that is, if said companies don't decide to drop your policy for "double dipping."
It Could Also Constitute Fraud
Having a vehicle insured under multiple insurance policies could amount to "unjust enrichment," since a payout by both companies would net you, your co-signer or lienholder a profit instead of merely being compensated for your vehicle's fair value, the cost of your injuries and other assorted expenses. For instance, imagine if you got into an accident and received $10,000 to cover the damages to your vehicle. With a double-insured vehicle, there's the possibility that a co-signer could file his or her own claim and receive $10,000 for the same, despite having no actual ownership of the vehicle.
There are few laws that explicitly make double insurance illegal for this reason, but the practice is usually prohibited under the insurance company's fine print. It's also frowned upon in a court of law – unjust enrichment through double insurance could result in a number of serious civil and even criminal penalties.
Primary and Secondary Coverage is Still Acceptable
Although double insurance is usually out of the question, you can still have your vehicle covered under a primary and secondary insurance policy. The primary coverage handles the bulk of your post-accident costs, while the secondary coverage kicks in to cover extra expenses. An umbrella policy usually provides secondary coverage against unforeseen expenses. Having this coverage could come in handy if the costs of an accident far exceed your current liability limits.
Although your lienholder or co-signer has a vested interest in your vehicle, it doesn't mean they can double-dip by buying separate insurance policies for your vehicle. For more information, check out websites like http://www.unitedsecurityagency.com.
After we purchased our first home, we realized that it might be a good idea to evaluate our insurance coverage. Although we had purchased homeowners insurance before, we had never owned a policy as large as the one we would need for our new place. Also, our new home had a trampoline and a swimming pool, which made us worried about liability. To iron out the details, I decided to meet with our insurance agent. We talked about things like monthly premiums, coverage limits, and deductibles, and it was incredible to learn more about the terminology. This blog is designed to help you with the same types of questions.