Growing up in a suburban area, having a car was an absolute necessity.
Nowadays, living in an urban area I love not owning a car!
While having a car comes with freedom, owning one comes with huge headaches, especially if you’re in an urban area. For one there’s the large fixed expenses, including expensive parking and time-consuming maintenance and repairs. Then you have the stress of tickets and accidents.
All of these reasons make car ownership a hassle for some people. If you can get away with it, I always recommend not owning a car but having access to one if you need it! With the invention of ride-share apps and having a variety of public transportation options available, not owning a car is easier than ever before!
However, by far the biggest beneficiary will be your wallet. According to the NYT, about 92 percent of households have access to a car with the average annual cost of driving a new car over $12,000 a year!
Despite not owning a car, you still want to be properly protected especially if you still drive a lot (rent or borrow). A non-owner car insurance policy (also known as a “named insured” or “named non-owner (NNO)” policy) is exactly what it sounds like, car insurance for people who don’t own the cars they are driving!
Accidents happen all the time, regardless if they are your fault or not. You and your passengers could get seriously injured by someone else’s negligent driving or worse, you could be the one at fault for wrecking someone’s car and critically injuring them. Not having proper insurance is an unaffordable risk and can literally wipe you out financially!
Non-Owner Car Insurance Basics
Non-owner car insurance policies typically have 3 parts:
Part 1: Liability insurance coverage
a) Bodily injury: This is liability protection for you to cover the cost of medical care for other people if you’re at fault for the accident.
b) Property damage: This is liability protection for you to cover the cost of any damage you cause to someone’s property (car, fence, home, etc.) if you’re at fault for the accident.
- Pro Tip: Coverage is quoted in 3 parts such as “$250/$500/$100,” which means the maximum liability protection is $250K bodily injury per person / $500k total bodily injury per accident / $100k for property damage
Part 2: Uninsured/Underinsured Motorist (UM/UIM) coverage
a) UM/UIM bodily injury: This is protection to cover you and your passengers’ medical bills caused by a driver without any or enough bodily injury liability insurance (Part 1a).
This can also cover hit-and-run accidents (where the driver can’t be found) and even when you are not driving: walking, biking, or riding someone else’s car (incredibly important in urban areas).
b) UM/UIM property damage: This is protection to cover damage for your car and other property caused by a driver without any or enough property damage liability insurance (Part 1b).
- Pro Tip: UM/UIM bodily injury and property damage will automatically increase with your base liability coverage (i.e. if you have $250/$500/$100 in liability coverage you will also have the same amount of UM/UIM coverage)
- The UM/UIM property damage coverage is the only part that has a deductible
Part 3: Medical Payments (MedPay) or Personal Injury Protection (PIP) coverage
a) MedPay: Covers you and your passenger’s medical payments if you are injured in a car accident, or walking, on a bike, riding a bus, etc.
This coverage will pay regardless of who’s at fault for the accident (“no fault”), so even if the accident is your fault, MedPay will cover you and your passenger’s medical expenses.
MedPay is only required in Maine and New Hampshire, otherwise it’s optional coverage.
b) PIP: More comprehensive medical coverage. Like MedPay it is “no fault” coverage and covers you and your passengers in an accident. However, it includes medical payments and other costs such as your lost income, physical or occupational therapy, rehab, or even some funeral expenses.
By contrast, PIP is required in several “no fault” states (including Florida, Massachusetts, New York, and New Jersey). These states also restrict lawsuits since PIP helps ensure that all drivers have a minimum level of protection for themselves and their passengers, regardless of who caused the accident, by filing a claim with their own insurance company.
- Pro Tip: MedPay/PIP could be your primary health coverage in a car accident and be applied toward your deductible and out-of-pocket maximum on your health insurance plan (secondary coverage)
- Check with your health insurance provider to see if they provide primary or secondary coverage in the event of a car accident since you might be able to hit your deductible/out-of-pocket max using MedPay/PIP!
Non-owner car insurance doesn’t include collision or comprehensive insurance, which covers damage to the vehicle you’re driving. It also doesn’t extend coverage to anyone else living with you, as most standard car insurance does.
- Pro Tip: If you don’t own a car but have substantial assets, a non-owner car insurance policy can unlock the ability to buy umbrella liability insurance coverage, since most umbrella insurance providers will require you to have base home/renter and car insurance policies, with enough underlying base liability coverage
Protect Yourself: Don’t Take Unaffordable Risks
If you have used your money system and have built a substantial amount of financial freedom, there is no reason to take unaffordable risks that can wipe you out financially in one accident.
Having non-owner car insurance protects you in 3 ways, from most to least important:
1) Liability Insurance To Protect You Financially
If you have any assets, this is the biggest reason to buy non-owner car insurance. Accidents happen all the time, sometimes out of your control, and a legal battle could run in the millions of dollars.
My insurance company offered me a non-owner policy with $250K/$500K coverage (per person/per accident) for bodily injury liability to cover any medical expenses of someone hurt due to my fault and $100K for property damage liability with a $500 deductible. This was the maximum liability coverage that they could offer on a base car policy.
Having non-owner car insurance also gives me access to purchase an umbrella policy for extra liability protection above these maximum limits
2) UM/UIM Coverage To Protect You And Your Passengers
UM/UIM coverage is the second most important reason to have non-owner car insurance. While you could be a safe driver, the more likely scenario is that someone else hits you!
This coverage is paid by your own insurance company and protects you, your family, and anyone else in your car if there is an accident and the person at fault doesn’t have insurance or the minimum state limits.
It’s estimated that 1 in every 8 drivers on the road has no car insurance, despite every single state (except New Hampshire) legally requiring all drivers to have an active policy. That’s a lot of drivers out there driving illegally!
For the others that do have insurance, some may have just the state minimum coverage requirements which are not enough to cover you in a serious accident. For example, in New York state the minimum bodily injury liability coverage is $25K/50K per person/per accident and $10k for property damage. That’s not nearly enough for a major accident!
- Pro Tip: In order to have UM/UIM coverage, you have to own an auto policy (including a non-owner policy). Umbrella policies also have excess UM/UIM coverage (more below) but you won’t be able to access it without an auto policy first
My policy has UM/UIM coverage up to $250K/$500K per person/per accident, which you’ll note are the same limits as the liability coverage. Raising your policy’s liability coverage will automatically raise the maximum for your UM/UIM coverage.
Getting paid by the other side is always an uphill battle. Many people simply don’t have the money to pay, their insurance company may refuse to cooperate, or they may flat out not pay you even if they’re ordered by the court.
Remember, UM/UIM coverage can also cover you for hit-and-run accidents where the driver can’t be found. You can’t count on the other person’s insurance policy to pay you if you can’t find who hit you!
Getting the maximum UM/UIM coverage can give you peace of mind that no matter what, your insurance company will have you covered when the other person is at fault, even if they don’t have insurance or can’t be found.
If you are the main income earner in your family, in the worst-case scenario that you are seriously injured or killed in an accident, having enough UM/UMI coverage (including umbrella coverage, more below) and an appropriate life insurance policy is a must to protect your family.
Examples:
Let’s assume Henry and Henrietta have rented a car and are driving in New York City when they are hit by a driver who runs a red light, landing them in the emergency room with severe injuries that put them both out of work for 3 months.
They found out that the other driver was driving illegally with no insurance, but they have a non-owner car insurance policy with $250K/$500k of UM/UIM coverage.
They can both be compensated up to $250K per person and $500K in total for their injuries and lost wages, despite the other driver being at fault and not having insurance
If the driver speeds off, never to be found again, they can still claim up to $250K per person and $500K in total for their injuries and lost wages
If the driver did have insurance but only the minimum New York requirements, they would collect up to $25K from the other driver’s insurance company and then claim up to $250K per person and $500K in total from their own insurance company
- Pro Tip: You can also get umbrella UM/UIM coverage as part of your umbrella policy
- In the example above, if Henry was permanently disabled in a car accident, he would be limited to recovering $25K from the other driver’s insurance plus $250K from his own insurance policy, for a total of $275K. Since he’s a high-income earner, $275K doesn’t even come close to covering a lifetime of lost earnings and treatment for his pain and suffering
- However, if he had a $5 million umbrella liability policy with UM/UIM coverage, that would kick in above the $275K for a maximum recovery of $5.275 million!
- On top of that, Henry has individual long-term disability insurance and can also collect the benefits from that policy, which does not reduce with benefits received from other sources, as long as he remains disabled!
3) MedPay/PIP Coverage To Protect You And Your Passengers
MedPay and PIP coverage is the least important part of the policy because you should already have appropriate health insurance with a deductible and out-of-pocket maximum that you can afford and disability insurance in case the injury is severe.
However, there are still benefits to having the extra coverage. Primarily because it doesn’t just cover you, but also your passengers who may not have their own PIP coverage.
- Pro Tip: PIP is more useful if you’re living in urban areas as it also covers injuries if you’re struck by a subway, train, bus, as a pedestrian, or on a bike!
For example, if you’re walking around NYC (a state that requires PIP) and get hit by a car, you would:
1) File a PIP claim under your non-owner car insurance
2) If you don’t have PIP coverage the other driver’s bodily injury liability coverage on their car insurance (minimum $25K in New York) should pay your bills
3) If the other driver has no car insurance (because they’re driving illegally), you would use your own health insurance as a last resort
The “regardless of fault” part of the PIP is important since auto insurance policies won’t pay for your injuries if you’re the one who caused the accident and some health insurance policies choose to exclude car-related injuries (you’ll want to double-check with your own health insurance provider).
Depending on your health insurance policy, you may be able to use PIP as your primary medical expense coverage in an accident, which means it’ll be used before your regular health insurance kicks in
For my policy, the difference in premium between the state minimum $50K PIP coverage and a $250K PIP coverage with a $250 deductible is only ~$50 a year. That’s pretty inexpensive for the peace of mind and hassle-free ability to cover up to $250K of health expenses for me and my passengers. Better safe than sorry.
- Pro Tip: also check with your health insurance provider to confirm they are secondary insurance coverage to your PIP since you may be able to use your PIP payments to hit your deductible/out-of-pocket max on your health insurance and have everything above your PIP limit covered for free!
- For my policy, my insurance company confirmed that the PIP is primary coverage but any payments won’t satisfy my deductible. Still, in the event of a catastrophic accident, I would only have to pay a $250 deductible on my PIP and exhaust up to $250K of damages before my health insurance kicks in and I have to deal with the deductible and out of pocket maximum there
While the extra benefits from PIP such as lost income are nice to have, I don’t rely on them since I have appropriate STDI and LTDI policies. If you don’t have your own disability insurance then the extra benefits are better than nothing but not ideal.
For one, in New York PIP only covers lost income up to $2K a month or 80% of monthly income, whichever is less. While it may cover basic necessities, it’s about as much as you can get on unemployment benefits and definitely not enough to replace your actual income.
Second, PIP only lasts for up to 3 years after the accident in New York. My STDI covers me for 3 months until my LTDI policy kicks in and covers me until I recover or age 65.
Who Should Have A Non-Owner Policy
Even if you don’t own a car but get behind the wheel from time to time, not having some sort of protection could be an unaffordable risk.
There are a few common scenarios that would make sense to have non-owner car insurance:
- Borrowing cars: If you borrow other people’s cars, you rely on their car insurance policy to cover you in case of any accidents. Given some people drive around with the state minimum coverage limits (which are shockingly low), their policies may not be enough to cover you financially. If you’re borrowing cars often, it’s probably a good idea to have your own policy to act as a safety net in case the other person’s car insurance doesn’t fully cover you.
- Renting cars: While some car rental companies offer some basic level of liability coverage (for a hefty fee), I’ve had issues getting any amount of liability coverage on recent rentals. A non-owner auto policy is cheaper in the long run than purchasing liability coverage from rental companies even if you’re renting a few times a year and also more reliable as you know which insurance company holds your policy and the limits of your coverage. This also applies to car-sharing services like ZipCar and any other form of short-term rental car services.
- Avoiding insurance coverage gaps: Lastly, it may make sense to get non-owned car insurance when you are temporarily getting rid of a car and want to maintain car insurance coverage to avoid any gaps in your history. Not having car insurance creates a “coverage gap,” which car insurance companies see as a higher risk and can increase your premiums the next time you own a car and need to buy insurance. A non-owner policy is cheaper than regular car insurance and is a good way to avoid a coverage gap if you’re in between owning a car as well as providing you with additional protections.
My Experience Finding A Non-Owner Policy
Most non-owner car insurance policies aren’t quoted online, so I had to call a few different insurance agents around my area until I found a few that offered the product (USAA, Geico, Travelers, and Liberty Mutual). The hardest part of the whole process was finding an insurance company that would offer the product!
The quote requires your driver’s license number, a list of any accidents or driving violations you’ve had in the past few years, and a few questions about your current situation including if someone in your household owns a car.
If your spouse or partner is going to be on the policy too, you’ll need to provide the same information for them as well. Unlike regular car insurance where the car is the one being covered by the policy, a non-owners policy only covers the people listed on the policy (the “named insured”).
When you’re shopping for your policy, it’s smart to compare quotes from as many different insurance companies so you can find the best prices and the best coverage. My agent told me the factors that impact the price the most are driving record, age, location, credit score, and the coverage amount.
It’s very important when you are buying a non-owner policy from your insurance agent that you get as much coverage as you can afford, especially UM/UIM coverage. Keep in mind that having a non-owner policy unlocks umbrella liability insurance since most insurance companies require both home and car insurance policies to buy umbrella coverage.
If you do choose to buy an umbrella policy, make sure your non-owner policy has the sufficient base liability coverage limits your umbrella policy requires to be effective (i.e. my insurance company’s umbrella policy requires at least $250K/$500K for bodily injury and $100K for property damage on my non-owner policy).
Given my clean driving record, the quotes ranged from $50 – 100 a month depending on the insurance company for my preferred levels of coverage. You can also get discounts if you bundle your other insurance policies with the same company.
You can be the most defensive driver in the world, but you still can’t control other people’s driving and unexpected accidents from happening. Spending a couple of hundred bucks a year for peace of mind that you will be properly protected whenever you’re in a car (or on foot!) is absolutely worth it in my opinion.
Before you decide if it’s worth it for you, ask yourself if you’re willing to take a catastrophic risk to save a few bucks?
Stay safe on the road.