Cosigning a Car Loan: Do You Need to Be on the Insurance?

Newly licensed drivers often get better deals on auto financing by having a cosigner with established credit appear on the title of the vehicle. Since new drivers often do not have a strong credit history, lenders may charge higher rates for auto loans to offset the risk of lending to someone with poor or no credit. In general, cosigners are not required to have their names included on the vehicle's auto insurance policy, but in most cases it may be beneficial for the cosigner to do so.

Cosigner Considerations

If you cosign your son's car you are not required to be on the vehicle's auto insurance policy because as a cosigner you are only involved in the financing part of the transaction and do not need insurance coverage, especially if you do not drive the car regularly. However, when you cosign to finance a car, you should be fully aware of what kind of insurance the car has and what is covered. Since your name appears on the vehicle's documentation and you are one of the owners, making sure that the vehicle has proper insurance is important because you are responsible for the car. Before buying coverage, determine whether adding yourself to the policy will be more beneficial and compare quotes and protection from several different insurers.

Cost

If you regularly drive the vehicle you cosigned for, being on the policy may help reduce the cost of insurance. Auto insurers set premiums based on the risk associated with the driving skills of the primary driver. If your son is a new driver, his premiums may be higher because the insurance company may consider a new driver to carry a higher risk. Including yourself in the policy as one of the drivers would reduce the cost of insurance.

Same Household

If you and your son reside in the same household, you should be on the car's auto insurance policy. Most insurers will cover members of a household and give the same protection to other members as to the primary driver. Apart from cost, including yourself in coverage is also beneficial because, if you get into an accident while driving your son's car, the insurer will pay for property damages and personal injuries, depending on the extent of the policy's limits.

Vicarious Liability

When you cosign a car, you have vicarious liability, that is, you are responsible to an extent for any damages that may be caused by the actions of the driver. It is your responsibility to ensure that the car is properly insured and continually covered. From the lien holder's perspective, it is more advantageous for the vehicle to have comprehensive and collision coverage, if there is balance due on the loan. Otherwise, if the vehicle is not properly insured, you may be held accountable as one of the co-owners. Although not required, you should include yourself in the policy so that you will be notified of any changes made to the policy, such as cancellation.