If Two People Co-Sign for a Car, Which Person Should Be on the Insurance?

When insuring a car, think about who will drive it.

The co-signer on the loan of the car is largely irrelevant for insurance purposes. What matters more, when it comes to insurance, is who will drive the car more often, and whose name appears on the title of the vehicle. In many cases, the name of the co-signer for the loan does not appear on the title and that individual may never drive the vehicle.

Co-Signing

Co-signing on a loan means that you agree to be held legally responsible for the repayment if the original borrower defaults. People co-sign for different purposes. Sometimes, they co-sign to have access to the item bought on credit, for instance, the ability to borrow the car may be a reason to co-sign the loan. In other instances, the co-signer may wish to simply help the original borrower obtain credit that would otherwise be inaccessible. A parent may co-sign the car loan of a teenage driver who does not yet have sufficient credit history to borrow the funds on his own.

Co-Ownership

In the prior example, the parent who agrees to co-sign the loan may not wish to partially own the car of the child. A friend, on the other hand, may co-sign only on the condition that his name be put on the title, even though he won't really drive the car. This will ensure that the car cannot be sold without his consent. It is also possible for someone in financial distress to ask a wealthier friend to co-sign and then enter a spouse as a co-owner instead of the co-signer. In short, any imaginable permutation of co-signing and co-owning is possible and legal.

Liability Insurance

Liability insurance, which is mandatory in every state, will pay for damages you cause to others due to faulty driving. In addition to your name, the names of others who will regularly drive the car should appear on this policy. This way the insurance cards that you must keep in the car and show to law enforcement officials in routine traffic stops will feature the names of all individuals who may be asked for them by the police. If a co-signer will not drive the vehicle regularly, her name does not need to be on the liability insurance policy and cards. This person, like any legal driver, can still borrow the car occasionally, however.

Comprehensive Coverage

Comprehensive insurance, which is optional, will pay for damages incurred due to your own fault or where the party at fault cannot be located. Such policies will automatically send a check to the legal owners of the vehicle, which would be the person or persons whose names are on the title. If your co-signer will not drive the car and does not need to be named on the liability insurance policy, he may still wish to place his name on the title to ensure that he would get part of the proceeds if the car should be damaged or stolen. If a title has already been issued, and the co-signer's name does not appear on it, but he wishes to be paid in case of an adverse event, talk to your insurance firm. Special arrangements are often possible.

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