Could You Still Need Auto Insurance Even If You Don’t Own a Car?
If you polled a random sample of people who do not own cars to ask if they thought they needed auto insurance, chances are their answers would add up to a resounding “NO.” However, personal finance experts stress that the issue is not quite as obvious as it may seem, emphasizing that there are, in fact, several situations in which non-owners can benefit from carrying auto insurance.
Situation #1: You don’t own a car but plan on driving while traveling
Many people who travel frequently for work or leisure find it inconvenient to own a car. They have to find a safe place to store their vehicles while they’re away, and maintaining a car that goes for long periods without being used can be tricky, particularly if it’s an older make or model.
Yet, it isn’t hard to envision a situation in which a traveler would want to rent or use a car while visiting a faraway destination. In some cases, companies will only rent vehicles to customers who have their own active insurance policies. In others, the cost of continuously purchasing temporary insurance through the rental agency adds up to surprisingly large sums.
If you frequently find yourself in this kind of situation, you could be a candidate for car insurance even though you don’t actually own a vehicle.
Situation #2: You don’t currently own a car, but plan to in the future
Insurance companies often charge much higher premiums to people with lapses and gaps in their auto coverage histories. This is because, statistically speaking, drivers who have not been continuously covered pose an elevated risk of filing a claim. In many U.S. states, people who go uninsured for more than 30 days end up paying premiums two to three times higher than their previous rates when they become insured again.
If you currently own a vehicle that you are planning to get rid of, or if you sold your vehicle but your previous policy has not yet expired or lapsed, you can prevent this from happening. Maintaining your coverage during your period of non-ownership can pay off in the long run in the form of sustained savings on your premiums, which might otherwise double or triple.
Situation #3: You regularly use car-sharing services
Car-sharing services like Zipcar and Car2Go have made huge inroads in recent years. These companies provide affordable transportation solutions to people who need a car now and then, but not often enough to justify the costs of ownership.
As with car rental companies, car-sharing providers often offer in-house solutions to drivers who do not have active coverage. However, like car rental companies, they tend to charge bloated rates that can quickly make the cost of using the service seem far less advantageous.
If you use car-sharing services often, you might stand to benefit financially from carrying your own policy. This makes even more sense if you’re currently between cars, or if you also travel a lot and regularly rent or borrow cars in faraway destinations.
The solution: A non-owner car insurance policy
Insurance companies have devised a practical solution for people who don’t own a car yet want to avoid the drawbacks and downsides that come with not being covered. They are called non-owner car insurance policies, and they are typically configured to meet the minimum requirements for liability insurance in the local jurisdiction where you live.
In the world of car insurance, liability protections extend to two key areas:
- They cover the costs of treating injuries suffered by other people involved in a car accident
- They extend to repair and remediation costs associated with property damage resulting from an automobile accident
Minimum coverage requirements vary from one jurisdiction to the next. In some states, liability coverage only kicks in if you were determined to be at fault in the accident. Others have “no-fault” regulations, which require all parties involved in an accident to file a claim with their insurance providers regardless of who caused the accident.
Features of non-owner car insurance policies
Non-owner policies typically cover the same scope as liability insurance for drivers, except that it usually costs about 5% to 15% less. Also, remember that liability protections will cover the costs of treating injuries suffered by others involved in the crash, up to the maximum amount specified in your policy. However, they will not cover your own.
Here are some other common and optional features of these policies:
- No deductible: Most non-owner policies have zero deductibles, as they are intended to supplement or address gaps in the coverage carried by the owners of the cars you occasionally drive.
- Uninsured or underinsured motorist coverage: In some states, insurance companies offer uninsured or underinsured motorist protections with their non-owner policies. These forms of coverage will reimburse you if you are injured in an accident involving another driver who has no insurance, or whose insurance will not fully cover the costs of your medical treatments.
- Medical payments coverage: Standard liability insurance covers injuries to the drivers and passengers of other vehicles involved in a crash, but not to you or the passengers in your car. Some providers let you close this gap by adding a medical payments (or “medpay”) rider to your non-owner policy.
Do you need a non-owner policy?
Experts generally recommend considering a non-owner car insurance policy if you meet one or more of the following criteria:
- You want to avoid a coverage gap that would last more than 30 days
- You borrow cars frequently and are not explicitly named on the owner’s insurance policy
- You’re a regular user of car-share services
- You rent cars frequently (once a month or more)
On the other hand, you likely don’t need one if:
- You only drive a car owned by your employer, and only for business purposes
- You drive borrowed cars owned by someone in your household, or by someone who has specifically added you to their policy as an authorized driver
- You are unlicensed and are not planning to become licensed in the next 30 days
Alternatives to consider
If you currently have an active car insurance policy but you’re planning to sell your vehicle, your provider may allow you to downgrade your current package to non-owner coverage.
Alternatively, if you own a car that you are planning to take off the road and no longer drive, some states allow you to change its registration status to “non-operational” (non-op) or “planned non-operational” (PNO). In some cases, this can entitle you to maintain a minimal form of insurance that will cost less than you currently pay. It could also help you avoid a costly coverage lapse yet maintain your full eligibility to drive other vehicles without worry.