Don’t Own a Car? You Still Might Need Auto Insurance

With the soaring cost of gasoline, many people are seeking more economical ways of getting around. Increasingly, people are car-pooling or taking the bus. Many city dwellers rely solely on mass transit and taxis to get around; they rent cars whenever they need to take longer trips. In at least 20 American cities, car-sharing clubs have sprung up. These clubs own vehicles that are available for hourly rentals to club members. The idea is to give people who occasionally need a car access to one without the cost and inconvenience of ownership.

In all of these circumstances, people retain the option of driving when the need arises. This is not a problem if nothing goes wrong. However, what happens if someone has an accident while using a car-sharing club vehicle? Who will pay for the resulting injuries or damage? The driver will likely assume that the vehicle’s owner has insurance to pay for any damages, and that may be true. However, there are some good reasons not to rely on the club’s insurance:

  • The club may fail to pay the premium on its policy, causing the insurance company to cancel it.
  • The club may fail to inform the insurance company that it has purchased the vehicle the member is driving. There is no guarantee that the club’s policy automatically covers newly acquired autos.
  • The club may fail to comply with a policy condition, giving the insurance company justification for denying the claim.
  • The club’s policy may exclude coverage for that particular loss.
  • The club’s insurance limits may not be high enough to fully cover the loss.

In truth, the driver of one of these vehicles has no control over the amount and terms of the club’s insurance, nor can he control the club’s actions in the event of a claim. These same issues will apply if he rents a car or borrows one from a friend. What is the occasional driver to do? Strange as it may sound, he should consider buying an auto insurance policy.

Insurance companies can offer auto insurance with a special policy change titled Named Non-Owner Coverage. This policy provides coverage for specifically named individuals when they use vehicles not ordinarily available to them. A standard policy written for a car owner already has this coverage, but a policy for someone who doesn’t own a car must include the special form. The policy covers the driver for:

  • His liability for injuries or damage to others,
  • Medical payments for relatively minor injuries he suffers while using the car, and
  • Major injuries he suffers in accidents with uninsured or underinsured motorists.

Coverage requirements may vary from one state to another, so it is advisable to check with an insurance agent about the coverage in your state. Should the policyholder buy a vehicle, the policy insures the vehicle for these coverages automatically for 14 days.

It is important to understand that the liability insurance this policy provides will pay only after the vehicle owner’s liability insurance is used up. It also does not insure other family members unless it specifically lists their names. Finally, it does not insure the vehicle for collision or other causes of physical damage. An insurance agent can explain options for insuring these types of losses. Because of these coverage limitations, however, the cost of the policy may be relatively inexpensive.

Operating a motor vehicle is always risky, whether the driver owns, rents or borrows the car. Car accidents can be financially devastating. All who plan to drive at some point should make sure they have proper and adequate insurance backing them up.

About Brian Hendricks

Brian Hendricks is the President of Fidelity Insurance Group. Brian started Fidelity in 2003 with 0 clients. Today Fidelity Insurance Group is a Premier Independent Insurance Agency in Florida with over 3,000 families and businesses insured. Brian currently serves on advisory boards for 2 of the largest property insurance companies in Florida. Knowlege, Integrity, and Committment are his and his agency's guiding principles.
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