A client of mine sent me an email over the weekend letting me know he’d sold his car and had not replaced it yet. Since he’s engaged, he’s sharing his fiancé’s car until he replaces the sold one in the next couple of weeks. He asked an excellent question I run into from time to time; should he cancel his car insurance until he buys a replacement?
My recommendation to him was no, but let’s remove the car from his policy. Most car insurance companies dance around this but there is a company I work with that enables us to have what we refer to as a driver’s policy that’s perfect for situations like this. My rationale for not cancelling his policy is twofold; it prevents him from having a lapse in coverage and it provides him with liability coverage while driving someone else’s vehicle.
Most car insurance companies don’t like to see a lapse in coverage. When there is one, the car insurance companies rate the person who’s had a gap in coverage (except due to active military duty) with a higher rate than one who’s had continuous coverage. If we cancelled my client’s policy, it would almost guarantee he’d pay more for the car insurance on his new vehicle than he would if we moved him temporarily to a driver’s policy. The long term premium savings clearly outweighs two weeks with no car insurance.
In addition, the “driver’s” policy provides my client with liability coverage when driving his fiancé’s car, a rental car, or anyone else’s vehicle. The liability coverage protects him if he’s sued by another driver if he were involved in an accident while driving anyone else’s car. His homeowner’s policy wouldn’t protect him in this event, but the liability portion of the driver’s policy does.
The driver’s policy, however does not provide property damage coverage. That coverage comes from his fiancé’s policy if he were to wreck her car, or in the case of a rental car, he’d need to purchase the rental car’s property damage coverage. Car insurance almost always follows the car, not the driver, in Texas.
I outlined the options in my email reply to my client including the rationale for my recommendation. He agreed, and we’ve updated his policy so that he has short term protection until he finds a new car, and he’s happy I looked out for his long term financial interest too! What would you have decided? Share your “decision,” questions, and comments with me in the comments section of our blog or on our Facebook and Google+ pages. I’d love to hear from you!