Don’t Own a Car? Why You Need Non-Owner's Insurance

By Chris Kissell

For more than a century, Americans have been in love with their cars. But now, the honeymoon may be over.

The average number of miles driven in America has declined for eight straight years, according to the U.S. PIRG advocacy group.

Young Americans in particular are abandoning cars in droves. Among 16-to-34-year-olds, drivers logged 23 percent fewer miles in 2009 than in 2001.

Still, there are times – running errands, weekend getaways – when people who do not own a car need to drive. Such "occasional drivers" may rent a vehicle, or use a car-sharing service such as Zipcar.

However, driving a rental or shared car without first securing car insurance puts you at enormous financial risk, says Peter Kochenburger, executive director of the Insurance Law Center at the University of Connecticut School of Law.

"You can drive carefully and do all sorts of things, but accidents happen," he says.

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Non-owner’s car insurance can protect such drivers. It provides liability insurance for people who don’t own a car, protecting them from being financially liable for injuries or property damage they cause in an accident.

"If you don't own a car, this can be a really good option," Kochenburger says.

What does non-owner’s insurance cover?

Non-owner’s insurance offers the same type of liability protection you’d get from a traditional car insurance policy, says Loretta Worters, vice president of the nonprofit Insurance Information Institute.

In addition, a non-owner’s policy is likely to provide liability insurance superior to the coverage offered at both rental agencies and car-sharing services, which typically offer just a few hundred thousand dollars in coverage.

For example, Zipcar's liability coverage limit is $300,000 per accident. While that may sound like a lot of money, it isn’t, Kochenburger says.

If you hit someone and they lose an eye, become paralyzed or suffer brain damage, you could be sued for everything from medical costs to lost wages and suffering, he says.

"That can easily exceed $300,000, or even $1 million," he adds.

Purchasing a non-owner’s policy allows you to get the liability coverage amount you need from the insurer of your choice, he says.

Worters says most car insurance companies sell non-owner’s policies. She adds that the cost of such a policy varies from company to company.

Jarrett Dunbar, a spokesman at Nationwide, says the insurer sells non-owner’s policies that may cost anywhere from 10 percent to 80 percent of the price of a normal full-coverage auto policy.

Factors that impact cost include how often a person plans to rent and drive a car, and other driver characteristics such as age and driving history, he says.

"A middle-aged driver with irregular access to a personal-use vehicle will be on the low-end of this spectrum," he says. "Teenage drivers with everyday use of a vehicle used for moving large equipment or other passengers would be on the high end."

Who needs non-owner’s insurance?

A non-owner’s policy is not necessary in many common situations where you drive someone else's car. For example, if you drive a friend's car and get into an accident, your friend's car insurance policy typically will cover the claim.

Also, if you live with a family member and regularly drive his or her car, the insurance policy on that car should cover you. However, it’s important to let the insurer know that you are a regular driver of the car before an accident occurs.

However, there are other instances when a non-owner’s policy makes sense:

1. Occasional renters. Most people who purchase non-owner’s car insurance live in urban areas and use public transportation to get around, but occasionally rent cars or use car-sharing services for vacations or other situations, Worters says.

2. Between car ownership. Non-owner’s insurance makes sense for car owners who sell their car, but don’t plan to buy a replacement vehicle for an extended period of time.

Even if you don’t plan to drive during that period, it’s best to avoid a lapse in car insurance coverage. Gaps in your coverage history can result in higher rates when you eventually purchase a new policy down the road.

Buying a non-owner’s policy can prevent you from having such a coverage lapse on your record, which in turn can shield you from paying higher rates when you later buy a car and resume car insurance coverage.

A non-owner's policy probably doesn’t make financial sense if you plan to be without a car for a year or more, Worters says. In such circumstances, the cost of carrying non-owner’s insurance likely will outweigh any increase in rates you will later pay due to a lapse.

"But if it's only a few weeks or months, it's best not to have that lapse in coverage," she says.

Before you buy non-owner’s insurance

Non-owner’s auto insurance offers liability coverage only. That means you aren’t covered for damages that occur to the vehicle you are driving.

If you rent a car, the only way to get such coverage is to purchase a loss damage waiver. This waiver ensures the insurance company will not hold you financially responsible for damage to or theft of the car you rent. These waivers typically cost between $9 and $19 per day, according to the Insurance Information Institute.

In addition, a non-owner’s policy is unlikely to offer "bells and whistles" coverage such as towing or rental reimbursement.

Thus far, non-owner’s insurance policies remain something of a niche product. Kochenburger says he recently spoke with an insurance agent about this type of insurance.

"In 10 years in Connecticut, she's sold one policy," he says.

However, Kochenburger expects the number of policies sold to increase if car-sharing becomes more successful and widespread.

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