As a strict matter of law, every statement or representation you make is deemed to be “material.” This means it’s binding even if it’s a minor error which doesn’t affect the essentials of the agreement. In any event, your answers, however you give them, must be scrupulously accurate.

Here’s an example: in an old legal case, an insurer was able to void the insurance policy and refuse to pay out because a woman used her maiden name, not her married name, on the contract of insurance.

The harshness and absurdity of this approach have been mitigated in recent years… but it can still apply where you misrepresent something which the insurers can establish was relevant to their risk and premium assessment.

National Association of Insurance Commissioners

All insurers are now subject to the NAIC, who often deals with complaints from people whose policies have been avoided when the insurers refuse to pay out. The NAIC will support you only where the error or misrepresentation is non-material. Here’s an example:

There was a case in which someone didn’t declare their previous driving experience was in Florida, not the Washington — and the insurance company refused to pay out when they discovered the facts. The NAIC upheld the insurer’s argument that this had affected their risk assessment. In other words, he found in favor of the insurer, not the driver.

Problems can also arise if you declare the vehicle is kept in a garage or on a driveway when it is usually parked on the road. Your policy can be avoided for this misrepresentation.

Beware of “fronting.”

The policyholder has to be the main driver. Some people think it’s a good idea to pretend a young person’s car is a parent’s car in order to get cheap car insurance with no down payment. So, they’ll put the policy in the name of the father or mother — but the car is mainly used by the young driver. This is known as “fronting,” and if you get found out, it will always justify an insurer not paying out. Don’t do it.

Even after you’ve scrupulously answered all the questions honestly, and your insurance is in force, you’ll find you have an obligation to continue reporting to your insurer during the term of your insurance contract.

This usually means reporting facts like a change of vehicle, change of parking place, and any motoring convictions. And if you like “modding” your car, beware: I’ve seen policies avoided where “go faster” modifications such as spoilers have been added. If you add extras to your car, make sure you declare them.

The insurers justify this position not by saying your vehicle is more dangerous, but that the modifications mean that you personally are now in a different category as an accident risk.

What are your insurance terms?

Your insurance entitlements are made up of your certificate of insurance and usually a standard insurance policy — a generic document with no details personal to you. 

The certificate of insurance

The certificate of insurance stands alone as the most important of your insurance documents. It is evidence that you have the minimum cover required by your state for your vehicle.

According to the National Traffic and Motor Vehicle Safety Act of 1966, certificates of insurance must follow a prescribed form. They must be in black and white, with no advertisements, and contain the following information:

  • Certificate number
  • Name and address of insurance company
  • Vehicle registration number
  • Policy holder’s name
  • Class of use
  • Beginning and end date of the insurance policy
  • Description of named people entitled to drive

Your insurers must give you a certificate of insurance under Section 102 National Traffic and Motor Vehicle Safety Act of 1966. The certificate also usually states the policyholder or any named driver will be covered when driving a vehicle loaned to the policyholder or named driver from a nominated supplier — but this usually applies only whilst your car is being repaired, so beware of relying on it.

Section 108 of the NHTSA of 1966 states your insurer must send you a certificate of insurance when issuing a Road Traffic Act policy. This is an important document, and these days it might be a real paper certificate or an electronic version.

Either way, a police officer is entitled to insist you produce a certificate in certain situations after an accident. So, keep it safe or easily accessible and put a copy in your glove compartment.

Named driver and any vehicle cover

There must be a list of named drivers entitled to protection under the policy. You’ll have negotiated this and specified the named people when you bought the policy. Your insurer will decide your policy premium based on your and the named driver’s claims record.

There may be an “any vehicle cover” term which means the policy will cover you if you drive someone else’s car with the owner’s permission. But this “any vehicle” cover is not automatic and depends on the express terms of the policy. The “any vehicle” clause typically extends only to the policyholder and not to all the named people entitled to drive.

There will only be one policyholder

So, if you are simply a named driver on the policy and not the actual policyholder, you are probably not covered to drive a separate car under that policy. Even if as named driver or policyholder you are covered to drive another vehicle under your certificate of insurance, this cover will be for third party only. It will cover people and property you injure or damage, but not the vehicle you’re driving.

So, if you write off your rich best friend’s $120000 BMW and it’s your fault, you won’t be covered with your zero down car insurance policy. And you’ll be personally liable for all damage and consequential losses to you and your friend. For sure, that will make you popular, and it will certainly be financially painful. The golden rule for everyone is to stop and think before getting behind the wheel of a different car.