In the last post, we took a look at some of the ugly truths about insurance. The profit motives of the insurance companies puts you and them at odds from the start. Then your insurance agent sometimes makes mistakes, and you generally bear responsibility for their errors. And then there’s the insurance policy itself, which is largely incomprehensible. Those are the generalities. In this post, we’ll take a look at some car insurance mistakes you can’t afford to make.
First: A Look at Insurable Interests
One important concept to keep in mind with insurance is that you can only get insurance for something if you have an “insurable interest” in it. This comes up in several different contexts. For example, you can’t buy an insurance policy on your neighbor’s car. You don’t own it, and you’re not responsible for it. If you’ve got a rental agreement where you accept legal responsibility for the car, then you can get insurance for it. But if you’re just trying to insure both your car and your neighbor’s car on one policy, say to get a multi-car discount, you can’t do that. If your neighbor gets into an accident, your insurance company probably won’t cover it because it’s not your car.
Similarly, you can’t get insurance on someone else’s life, unless you have some sort of relationship to that person. For example, you can get insurance on an immediate family member’s life, but not a celebrity’s life (unless you happen to be an immediate family member of that celebrity). With that basic concept in mind, let’s take a closer look at some car insurance mistakes.
Car Insurance Mistakes for Roommates / Cohabitating Couples
Do you have a roommate? Or do you live with your significant other, but you’re not married? Did you ever let your roommate or significant other borrow your car? Not normally, maybe, but “just this one time because my car’s in the shop and I just need to run out and get beer/tampons/milk”? In most states and with most insurance companies, if you let your roommate or live-in boyfriend/girlfriend borrow your car, and they get in an accident, it won’t be covered unless they are specifically listed on the policy.
Maybe you knew this already. Lots of people don’t. I knew one couple that lived together and shared a car. They decided to have the car titled and insured in only one of their names because the other one had a bad driving record. They figured that the bad driver could just “borrow” the car whenever, and the primary driver’s insurance policy would cover it. Not so fast.
Did you read your insurance policy? Every car insurance policy I’ve ever had said that it wouldn’t cover drivers who lived with me unless they were specifically listed on the policy. That means that if I loaned my car to my friend who lives five minutes away, and she got in a wreck, my insurance would likely cover it. But if my roommate borrowed my car, even if she never ever drives my car except this one time, my insurance company would likely deny the claim because she’s not listed on my policy.
Adding Extra Drivers to Your Policy / Combining Policies for Multi-Car Discount
You’ve got to list your roommates and live-in significant others on your policy. It’s worth it to have the coverage. The downside to doing this is that the insurance companies usually charge a little extra to add another driver onto the policy. This makes me crazy. It would make sense to me if the insurance company rated the policy based on the worst driver who might drive the vehicle, but as I’ve discovered, they usually tack on an extra fee even if both drivers have squeaky-clean driving records.
Well, at least if you live with your significant other, you can save a little money by combining both of your cars onto one insurance policy so you get a good multi-car discount, right? I hate to break it to you, but most likely not. Remember that insurable interest concept we were discussing earlier? Well, that gets in the way here. I can’t buy insurance on my boyfriend’s car, because I don’t have an insurable interest in it. I don’t own it, and I’m not financially responsible for it. The same goes for him and my car. So that means that I can have an auto insurance policy on my car, and I can list him as an additional driver, but I can’t have auto insurance on his car, so his car needs to be on a separate policy.
This also means that we don’t get a multi-car discount because the cars are on separate policies. And it means that our insurance companies get to charge us a little extra for having an extra driver listed on each policy. Are you tearing your hair out yet? Welcome to my world.
They’re Not All the Same—Check with Your Auto Insurance Company
There are some exceptions to those general rules. It seems to depend on the individual insurance company. For example, the boyfriend and I both used to have AAA auto and homeowner’s insurance policies. We were not allowed to have both of our cars on the same policy to get a multi-car discount. But, because both of our cars were insured with AAA, AAA didn’t charge us extra to list each other as drivers on our own policies. They figure that they’re already bearing the risk of having the other one of us as a driver, so it shouldn’t cost extra. God bless ’em. It makes sense, doesn’t it?
Mercury Insurance is the exact opposite. According to my broker, Mercury would let us combine policies and get a multi-car discount, so long as we live at the same address and carry the exact same coverage limits on our cars. That didn’t pan out for us this year, unfortunately. The boyfriend wants to keep full coverage on his van, and I wanted to drop down to liability-only on my car. Since we have different coverage, our cars have to be on separate policies, which means we lose the multi-car discount AND we have to pay the extra premium to cross-insure each other on our policies. I can’t remember how much the multi-car discount was, but it’s normally about 10–20%. To add the boyfriend as an additional driver on my policy was an extra $63, which came out to a whopping 16% of the premium amount otherwise. Crazy.
Remember when we talked about material misstatements on your insurance application before? Underreporting mileage is one of those things that can get you into trouble on your car. If you routinely put 20,000 miles a year on your car, but you tell your car insurance company that you only drive 12,000 miles, you’re putting yourself at serious risk that the insurance company will deny your claim if you get in an accident.
Mileage estimates are made at the front-end of the policy, so it’s understandable that the number you estimate might not be 100% accurate. Let’s say you normally drive 12,000 miles per year, but you bought a fourplex about 35 miles away from your house. Hypothetically. 😉 For the first five months, you drove back and forth to that fourplex 43 times in addition to your regular driving. Your mileage for the year might be 3,000 miles over what it normally is. Do you need to report that to the insurance company and pay extra? Probably not. But be careful if your insurance company makes you do odometer readings. You might need to explain that it was a one-off situation so they don’t raise your insurance rates.
Rental Car Coverage
Rental car coverage is a nice thing to have on your insurance policy. You get the same great coverage from the insurance company you’ve chosen, without an extra cost. (Check your policy to make sure.) But think hard when you’re at the rental counter. Who are the listed drivers for the vehicle? Is one of those listed drivers excluded on your car insurance policy?
This one came back to bite me. It was many years ago, and I was married at the time to someone who had a horrible driving record. We had a newer car, and it was basically impossible to insure him on that car. The one quote we were able to get for him as a driver led to a quote of $400-something per month for insurance. That’s like a whole second car payment! So we excluded him from the policy, meaning we signed a paper saying that we acknowledge that he is NOT insured on the car and would not be covered.
Then his grandfather died, and we went to Louisiana for the funeral. We got a rental car, and my husband signed the paperwork for the car. I knew my car insurance covered rental cars, so I figured we were fine. Guess what I didn’t think about until after we were driving out of the parking lot? Yeah. HE assumed liability for the car by signing the paperwork, but HE wasn’t a covered driver on our regular insurance policy. Oh shoot.
I said we should go back in to fix it. He said eh, nothing’s going to happen anyway. Well, it did. The rental car got stolen. And the New Orleans police department lived up to their reputation of being horribly incompetent, but that’s a whole ‘nother story.
The car was eventually found (someone must have literally tripped over it, because I KNOW the NOPD didn’t do any work to find it). This was lucky for us. The damage to the car plus the loss of use charges (yep, the insurance company gets to charge you because they lost out on rental income) added up to just a few thousand dollars instead of the replacement cost of the car. Yay? Don’t be dumb like I was. Think it through before you sign the rental paperwork.
Do you have any auto insurance mistakes that you’ve encountered? Let us know in the comments!