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Insurance and lenders likely will not allow someone else to insure your financed car, unless they can prove insurable interest in the vehicle.
Published June 29, 2020|3 min read
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It can be difficult, and in some cases impossible, to have someone else insure your financed car
Auto lenders typically require the name on the loan to match the name on the insurance policy
Insurance companies won’t insure someone if they don’t have enough “insurable interest” in the vehicle, meaning a financial stake in the car
It may be possible to prove insurable interest if the person taking out the policy lives with the car owner, or is a co-signer on the loan
If your car is financed, meaning it was purchased with a car loan, the lender will also likely require the person who financed the car to be the policyholder on the car’s insurance policy. The lienholder might also require you to include them on the insurance policy too.
Your lender is just one party with a say in how you insure your vehicle — most car insurance companies will only insure your vehicle if you are the car’s owner, leaseholder, or the named party on a car loan.
In order to insure a car, insurance companies look to see what your “insurable interest” is in the vehicle. If you want someone else to insure your financed car, you’d have to prove they have insurable interest, meaning that they'd be financially affected if anything happened to the vehicle. Typically, if someone’s name is not on the car loan, they do not have enough insurable interest in the vehicle to take out a policy on it.
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However, there are some circumstances when insurable interest can be proven even if the person taking out the policy isn’t the one whose name is on the loan, and some insurance companies may allow someone else to insure your financed car under specific circumstances, although it’s very rare.
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Insurance companies and lenders typically require the car’s owner or the person whose name is on the car loan to also be the car insurance policyholder. But there are actually a few instances where you might want someone else to insure your financed car even though they’re not the one who took out the loan.
The car is financed under a grandparents name, but they gift the car to their child or grandchild before it is paid off
The financed car is used as a family vehicle
However, even in the above circumstances, it can be difficult to find an insurer or lender who will allow someone else to insure your financed car if the loan is in your name.
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Most insurance companies will simply not allow someone else to insure your financed car, and some lenders won’t allow it either. This can be true even if you own the car outright. In most cases, insurance companies require the potential policyholder to prove that they have insurable interest in the vehicle before they agree to insure the car.
Typically, insurance companies consider people like the co-signer of a car, vehicle owner, or leaseholder to be people with insurable interest. It’s very difficult to prove insurable interest if you don’t have a financial stake in the car.
Auto finance companies typically require you to show evidence that the name on the car loan is the same name on the auto insurance policy. If the person you want to insure your financed car does not live in the same house as you, your insurer and finance company typically will not allow them to insure your vehicle, because they don’t have enough insurable interest in the vehicle.
One way to prove someone has insurable interest in your financed car is to have them added as a co-signer to the loan. If your lender allows you to add your relative as a co-signer on the loan, that may be enough insurable interest for an insurance company to list them as the primary policyholder on the car’s insurance policy. That said, you’d still need to be listed on the insurance policy. Most insurers require all licensed drivers in a household to be on a policy.
If you want someone else to insure your financed car because you simply want them to pay for your car insurance, and they agree to it, they should be able to make those payments, but you still need to be the primary policyholder.
If you bought a car for your child who is a minor and the car is in their name, you may still be able to be the main policyholder on their insurance policy. In fact, insurance companies might require a parent or guardian to be a co-signer on the policy if the driver is a teenager. Beyond these limited examples, though, it’s extremely difficult for someone to take out an insurance policy on a vehicle they don’t own or lease.
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