Not only can you insure a car on which you’re a co-signer, but in most cases, you’re legally required to be responsible for insurance if the primary signer doesn’t maintain adequate coverage. Even if you don’t have to insure a co-signed vehicle, you really want to do this, or you could wind up in bad financial straits if there’s an accident, theft or damage to the car.
Reviewing the obligations of a property co-signer regarding insurance will help you understand what you need to do if you’re a co-signer for a vehicle, boat or other property.
What Is a Co-signer?
When you act as co-signer for a car purchase or lease, you agree to meet the obligations of the loan or lease in the event that the primary signer of the contract doesn’t meet her obligations. You are often considered a co-owner of a car or credit account.
This means you are stuck with the payments, insurance and other legal obligations of the contract. In addition, the contract goes on your credit reports. That means if the primary signer is late or misses a payment, this goes on your credit report, as well.
What Are a Co-signer’s Obligations?
When you co-sign something, you agree to be the secondary party to the contract, agreeing to meet all of the obligations as if you were the primary signer in the event the primary signer defaults. You may or may not be responsible for damages caused by your co-signer – for example, if the primary signer gets into an accident and injures someone.
In the case of a car purchase or lease, you agree to make the monthly payments, keep the car insured and see that a leased car is returned to the leasing company at the specified time, explains Progressive. You must meet the insurance requirements required by your state and by the loan or lease company (which are often higher than what is required by the state).
Many loan and lease companies not only require the primary signer to carry insurance on the vehicle, but also the co-signer on a car. This doesn’t mean you need two insurance policies, it only means that if the primary signer doesn’t maintain insurance, you agree to automatically insure the car.
What Is Forced-Place Insurance?
In order to make sure the car is insured, vehicle loan and leasing companies might require you to agree to a forced-placed insurance policy. This means that in the event the primary signer fails to maintain insurance, an insurance policy in the name of the co-signer automatically begins.
These policies are usually more expensive than policies you can purchase yourself, explains the New York Department of Finance Services, so if you are saddled with one of these, contact your insurance company to see if you can arrange a better deal to replace the one put in place by the loan or lease company. These policies also don’t provide a co-signer with all of the protections of a typical car insurance policy, such as theft of personal items from the car or owner liability.
Other Ways to Protect Yourself
When you co-sign a vehicle loan or lease, your credit history and score will suffer if your co-signer misses a payment. One way to avoid this is to make the payments to the loan or lease company yourself, then have your co-signer pay you the monthly payments directly. If he is late or skips a payment, this won’t damage your credit.
You should also make arrangements to be notified immediately if your co-signer doesn’t maintain adequate insurance. If she doesn’t pay her premium on time, you usually have a 30-day grace period that continues the insurance coverage and covers the vehicle if there’s an accident, theft or damage.
Steve Milano has written more than 1,000 pieces of personal finance and frugal living articles for dozens of websites, including Motley Fool, Zacks, Bankrate, Quickbooks, SmartyCents, Knew Money, Don't Waste Your Money and Credit Card Ideas, as well as his own websites.