PEER072007

Peer review: Insurance for no car may be needless

Last update: July 19, 2007 - 7:27 PM

Q My daughter is paying her car insurance company a monthly fee of about $60 even though she no longer has a car. She said the company told her it would be cheaper for her to insure her next car if she continued coverage. She plans to get another car by year-end. Does this make any sense?

JOHN, MINNEAPOLIS

A Generally insurers prefer to see continuous coverage. However, this assumes you continue to own a vehicle. If your daughter does not own a car and is not driving, most insurance carriers will not have a problem with a short period of time in which a driver does not own a car and therefore does not carry insurance.

You begin to run into trouble if you own a car and it goes uninsured or if you go a long time without driving.

For example, suppose your daughter sells her car and drops her auto insurance. She then takes the bus and uses her friends for rides. After six months, she buys a new car and then secures new auto insurance. Most auto insurance carriers should not have a problem with this in terms of offering competitive coverage to your daughter.

Since your daughter does not own a car, the $60 a month she pays should not be insuring an actual vehicle. Instead, your daughter may be paying for a nonowner's auto policy. Those policies only provide liability insurance and are typically secondary coverage on a vehicle. For example, if your daughter is driving a friend's car and gets into an accident, the friend's coverage would cover the loss up to the friend's policy limits. Any liability claim above the limits of the friend's policy would then be covered by your daughter's nonowner's policy. Nonowner's policies make sense for very few people and $60 a month for it seems high.

Your daughter should call back her insurance company and talk to another representative to see if she gets the same advice. If she does, talk to another another insurance company.

BRANDON JONES (26), CFP