If you don’t own a car, you nonetheless may have been pitched to get car insurance anyway. At first glance, that idea may seem unappealing, but the reality is, in some cases, some people who don’t own cars should consider investing in non-owner car insurance. If you’re wondering whether a non-owner policy is right for you, follow this road map:
[Read: The Financial Considerations of Buying Your Teenager a Car.]
Consider the cost. Purchasing a non-owner policy isn’t as expensive as you might expect. “It’s usually significantly less than a typical insurance policy since holders are typically driving less than those who own their own vehicle,” says Jon Bloom, vice president of personal auto at Erie Insurance Group in Erie, Pennsylvania.
How much less? It depends based on factors such as your age and how often you plan on driving, but the financial products comparison website ValuePenguin.com suggests that non-owner car insurance is 5 to 15 percent less than a standard car insurance policy. According to Bloom, you may get a steeper discount than that. He says you can expect to pay less than half for a non-owner car insurance policy than you would a regular one.
Evaluate the type of coverage you’ll get. These policies can be handy, but they don’t cover as much as you would think. “It’s a liability policy only,” says John Espenschied, agency owner and manager of Insurance Brokers Group in St. Louis, Missouri. “There’s no coverage for physical damage to the vehicle you are driving or any other personal vehicle you damage. If you wreck a rental car, you have no coverage, because these policies are a liability policy only.”
And if you get injured, your non-owner car insurance won’t pay for your medical bills. Your insurance probably won’t cover medical costs for any passengers, though it depends on what your state allows in terms of buying medical coverage to go along with non-owner car insurance. Generally, the policy will only cover the medical expenses of the other people outside of the car you’re driving who have injuries.
Another way to look at it: A non-owner policy offers supplemental coverage. So, if you’re driving your friend’s car and you plow into somebody’s vehicle and destroy it, you can’t confidently claim that your insurance will take care of it. Your friend’s car insurance will pay for the damage first. Typically, your insurance will pay for whatever your friend’s insurance doesn’t pay for.
Factor in if don’t own a car but you drive often. If you sometimes borrow a friend’s car or a sibling’s vehicle, and you don’t live with them, investing in insurance is a wise idea. On the other hand, if you live with your parents, for example, you should be on their insurance and listed as a driver, rather than purchase non-owner car insurance.
[See: 10 Money Leaks to Shut Down Now.]
And while your friend should have car insurance of his or her own, having non-owner car insurance is about protecting yourself, too, Espenschied says. If you are in a wreck while driving somebody else’s car, “you could be financially liable if you are sued and the vehicle has low limits,” he says.
Espenschied offers up the example of your friend’s car insurance having a limit of $50,000 in damage for a wreck, which is pretty standard. Say the person you crashed into sues you and wins $100,000. Your friend or family member’s car insurance will pay that first $50,000, but what about that second $50,000?
“Anything over and above the policy limits are now your responsibility, which could mean garnishments or foreclosure on assets and property to satisfy a claim,” Espenschied says.
Consider if you use a lot of car-sharing services. Say you’re often renting from car-sharing companies like Car2Go or Zipcar.com. When you share a car as a driver, you’ll have at least the minimum amount of car insurance coverage that your state mandates. That can vary wildly, from $20,000 to more than $100,000 . Still, if you want more than the minimum coverage, and you often use car-sharing services, a non-owner car insurance policy is probably not a bad idea.
Take into account if you’re in between buying cars. For most people, this is going to be the reason you get non-owner car insurance. Maybe you don’t currently have a car. Say the transmission died, and there was no way you could afford to get it fixed, and buying new wheels wasn’t an option. You’ll likely opt to take public transportation and get rid of your car insurance.
Before you invest in non-owner car insurance, consider downgrading your policy.
In most states, if you go without insurance for 30 days or more, your rates could end up being two to three times higher than what they would normally be “and you limit the number of carriers willing to take your business,” Espenschied says. “It’s a Catch-22. You have to have insurance in order to get a reasonable insurance premium.”
It may seem financially foolish at first to pay non-owner’s car insurance for several months when you don’t own a car or plan on driving one. However, you could be paying double or triple your rates for several years if you don’t invest in insurance. Car insurers don’t like seeing gaps in coverage. It doesn’t matter if you have a good reason for not currently owning a car. With a gap in coverage, a future insurer could consider you to be unreliable and a risk to insure, triggering a spike in premiums.
[See: 10 Unexpected Costs of Driving.]
In some cases, it might be best to pay for non-owner car insurance for the months you don’t own a car; then, once you do buy a new vehicle, inform your insurer and switch over to regular coverage. Most major insurance companies such as Progressive and Nationwide — though not all of them — offer non-owner car insurance policies.
More from U.S. News
8 Big Budgeting Blunders — and How to Fix Them
Your Month-to-Month Guide to Savings
10 Foolproof Ways to Reach Your Money Goals
Do You Need Car Insurance if You Don’t Own a Car? originally appeared on usnews.com
