Most states require drivers to carry some type of auto insurance on their vehicles. In those cases, the minimum requirement is usually basic liability protection that covers personal injury and property damage. Lenders can also require insurance to protect their financial interest in a vehicle while money is owed on it. Sometimes however, questions can arise over who can insure a vehicle and whether more than one policy is needed.
While it may be legal for two different people to have two separate insurance policies on a car, many insurance companies do not allow the practice. It can also cause problems when you need to make a claim.
Requirement of Insurable Interest
In order to insure something, whether it’s a life, a home or a car, you have to have what the insurance industry calls “insurable interest.” Basically, it means you stand to lose something if the item in question is damaged or destroyed. In the case of a car, the owner usually has an insurable interest. Your neighbor wouldn’t be able to insure your car because it wouldn’t affect him financially if anything happened to it. There are some scenarios in which more than one party can have insurable interest in a car though, such as co-signors and lien holders. If the car is wrecked, for example, a co-signor could be held accountable for any amount still owed on the vehicle, and the lender could be forced to take a loss if that balance can’t be recovered.
Problems With Too Many Parties
Even though several parties can have insurable interest, it’s not necessary for each interested party to carry his own policy on the car. In fact, doing so could create significant problems when it comes time to collect. Insurance companies are like any other business in that they’re in it to make money. Accordingly, they won’t pay if they don’t have to, and introducing another insurance company into the mix could give them just that opportunity. While they’re busy fighting it out over who is supposed to pay out the claim, you could be left in the lurch. Pretty much any insurance policy can be structured to satisfy the needs of every interested party without having to double insure.
Is It Legal or Not?
Most insurance companies won’t allow multiple policies on the same car because of something called “unjust enrichment.” That’s a fancy insurance term for the idea that you shouldn’t be able to profit from a loss. If your car is worth $10,000 and it’s insured with two companies, you could conceivably get a payout of $20,000 if the car were wrecked and you filed claims with both companies. Although laws may not prohibit double insurance, realizing that kind of gain could be construed as fraud and may subject you to significant penalties.
Better Safe Than Sorry
Double insurance can happen for a number of reasons that can all seem legitimate, but ultimately it’s probably not worth the extra money you’d be paying out. It’s especially not worth it in light of the fact that you probably can’t collect on both policies without risking legal trouble. Insurance laws vary between states, however, and different companies can have different policies. For instance, California allows for self-insurance while Illinois does not unless you own more than 26 cars. Schedule an appointment with your agent to look over your policies. She can make sure you have the coverage you need and that you’re not paying more than you have to.
Christopher Williams has owned and operated his own small business since 2002, and has a wide range of professional experience in retail, sales and insurance industries. He's been writing professionally since 2004.