10 Common Questions about Personal Auto Policies

10 Common Questions about Personal Auto PoliciesBy Richard A. McGrath, CIC, LIA

A personal auto policy is a contract with an insurance company in which you agree to pay a set premium in return for financial protection against a list of specified damages and losses. Often times, we forget this fact and neglect to inform our agent of any changes that need to be made to the policy.

It may seem as if some of these changes are insignificant, but even the smallest change can impact whether or not your policy will provide protection against certain claims. Here are 10 common questions about auto insurance policies and the steps needed to address them.

1. Should I add my licensed teen driver onto my car insurance policy?

Although no parent wants the increased costs associated with a newly licensed driver, neglecting to add your teen onto your auto policy could lead to higher costs further down the road.

Car insurance companies consider all household members who have a valid driver’s license when determining premiums. If your teen were to get into an accident while driving your vehicle, the claim might not be covered. Additionally, you may be responsible to pay back premiums on the addition of the teen driver.

Rather than taking a chance on whether your teen driver will get into an accident or not, add them onto your auto policy immediately. To lower the impact on your premium, register your teen for safe driving courses that could qualify for additional discounts.

2. Should I let my child reside in another state with my car?

Many parents give a family car to their older kids who reside out-of-state when they are attending school. However, since that car is now being driven and garaged in a different area than stated on the policy, the risks change. If your child was involved in an accident, your insurance company could potentially deny your claim and cancel the policy.

Inform your agent that your child is residing out-of-state with the vehicle so a plan can be in place to properly cover your insurance needs. If your child has moved out-of-state, be sure to add their name to the title of the car. Doing this allows your child to be able to register the car in the new state, and purchase their own car insurance using their new address.

3. Should I continue to carry insurance on a car I sold to my child?

Typically, you can only carry auto insurance if you are the owner, lienholder, or co-signer of a vehicle. In other words, each of these parties would be impacted financially if something were to happen to the car.

Always notify your agent about any ownership changes with the car. Neglecting to do so could be reason enough to deny claims or cancel the policy. If you are planning on selling your car to your child, help them purchase their own insurance for the vehicle. If your child is a minor, you will have to be involved with the insurance contract regardless.

4. Can I finance and insure a car for a relative who lives out-of-state?

Since finance companies want evidence that the car loan registration and auto insurance policy are in the same name, it could prove difficult for you to insure the car.

If your relative were to get into an accident without you first notifying your agent about the situation, it is likely that the damages wouldn’t be covered and could result in a canceled policy. First, contact the finance company to see if the car can be refinanced by your relative. If so, they must then register and insure the car in their name for that state.

5. Is it okay to lend my car out to a friend for a few months?

When you loan your car to a friend for an extended period of time, the risks change since your car is being garaged someplace other than your residence and somebody else is acting as the primary driver.

If you are considering letting your friend borrow your car for a long period of time, you have two options. Check with your insurance agent to see if your friend can be added as a driver onto your auto policy. However, most insurance policies only allow drivers to be added who are household members. If you can’t add your friend onto the policy, then they should consider purchasing their own car insurance for the vehicle.

6. If I sold my car and the buyer is making payments, should I still carry the title and insurance?

Don’t keep your name and insurance on a vehicle that somebody else possesses. As the owner, you have vicarious liability for the actions of the person driving the car that you sold. Additionally, you’re paying for insurance, but any claims that are submitted might not be covered.

Sign over the title of the car to the new owner, that way he or she can purchase coverage once the car has been registered. To protect your interest in the car, make sure that you are listed as the lienholder on the car’s title and the auto insurance policy.

7. Is it okay to deliver pizza with my personal vehicle?

Due to the nature of delivery drivers having to constantly be out on the road, most auto policies exclude coverage. If you are caught using your vehicle to deliver items like pizzas, newspapers, etc., you could be responsible for paying the full costs of damages out of pocket. Check with your agent to see if you should change to a business-use or commercial auto insurance policy.

8. Should I let an “excluded driver” drive my car?

Adding an excluded driver onto your auto insurance policy means that the person isn’t permitted to drive your car, and if he or she is caught doing so, will not be covered under any circumstances. If the excluded driver causes an accident, you and the driver will be responsible for resulting injuries or property damage.

9. I bought a new car a few weeks ago, should I tell my insurer?

If you simply traded in your car for another, your policy should extend existing coverage to the new car for a limited time. If you are adding a car onto your policy rather than replacing it, you should purchase additional coverage prior to driving off the lot.

Typically, the deadline for telling your insurance company that you have a new car is anywhere from 14 to 30 days. Never assume your existing coverage will rollover to a new vehicle, so always check with your agent about the extent of your coverage before trading in or purchasing a new car.

10. Should I add my boyfriend or girlfriend onto my auto policy if he or she lives with me?

Be sure to tell your agent about all licensed household members, including girlfriends, boyfriends, spouses, or other eligible drivers. If you neglect to tell your agent about that person and they get into an accident, the claim could be denied, leaving you responsible for the costs of damages.

Remember, effective communication with your independent agent before a claim is an important factor in ensuring that you have the protection you need when the unexpected happens.

Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group of Sturbridge, Mass. He can be reached at 508-347-6850 or at rmcgrath@mcgrathinsurance.com.

This article is written for informational purposes only and should not be construed as providing legal advice.