One of the most common problems I come across especially with first time car owners is when someone cosigns for an auto loan without understanding what they are signing up for. The reasons that people have cosigners range from qualifying for financing or to get the best rate possible. When the lender includes another name on the loan, they typically require that person to also be a co-owner of the vehicle. No big deal right? Well now there is another owner of the vehicle who needs insurance coverage. Each owner of the vehicle should be named and listed on the insurance policy in order to be insured properly.
At the time that the cosigner agrees to be on the loan, they may not understand they are also agreeing to be responsible for the vehicle (and any person or property harmed by it) when they are also put on the title as an owner. We have been fortunate enough to catch most of these cases before there was any insurance incidents but there have been a few that were not so lucky.
One of our clients decided to cosign an auto loan for his granddaughter so she could buy her first car. She purchased the cheapest car insurance policy she could find which happened to be the one with no bodily injury coverage. The agent never asked who the owners of the vehicle were and never listed our client as an additional insured.
One day while driving she struck another motorist who was injured as a result of the accident. She was a student at the time and had very little assets so the attorney representing the other party looked at the other owner of the vehicle to pay damages. Because our client was not listed on his granddaughters policy there was no coverage or even legal defense covered by her policy. Because his own policy did not list his granddaughter or her vehicle on his own policy, there was no coverage for the incident.
The result? Our client had to pay $10,000 out of pocket in the form of monthly payments. Don’t make a $10,000 mistake by cosigning a car loan. If you do cosign for a car loan, make sure the individual insures you properly and carries sufficient coverage.
If you are uninsured because of a cosigning error, we can help fix it for you.