Expert: Anne - 12/2/2008

Question
Hello,

I co-signed for a car loan for my sister, and both our names are on the title.

She lives elsewhere and sometimes lets her car insurance lapse but still drives.

Am I liable for damages in an accident she or her husband may have?

What should I do to protect myself (other than NEVER co-sign a loan again)?

Do I try to get my name off the title, or take out my own insurance on the car? Or... ?

Thanks so much.

Answer
Well this is a very hard question without knowing your state and other living arrangements that you have.

There are two ways that you could "on the hook"

1. As the lien holder, the bank requires you and her to have insurance at all times on the vehicle. Should an accident occur, the bank will come after you period. However, even if there is no accident, if the bank finds  out (which they probably will because the insurance company will send a letter to the lien holder) see:
http://www.auto-insurance-claim-advice.com/Financial-Responsibility.html

they will increase the amount of the loan and pay insurance on the car. If the bank does this, the loan terms are horrible, interest rates are very high, the monthly payment on the insurance alone would increase the monthly payment of your car by a very high amount. The worse part, you will no be covered by this insurance. The bank would be covered by this insurance, which means if the car is in an accident, that the bank would get paid by that insurance company, but they can come after you for the damages.

2. If they get in an accident, your other assets (house, bank account, motorcycle, boat, etc.) can be at risk. It is very unlikely that you can personally insured this car if she does not live with you, so you might have a problem there. If she gets in an accident, it is likely that you personally can be held liable.

Your solution, she must get insurance on that vehicle Asap. If she cannot or you do not think she is reliable, then try to get her of the title. Really, the only way to do this is to have her find a loan on her own name, which could be a problem (if she could do this, it would be ideal, but if really can, then she probably would of done it on the first place).

I hope this helps,

Anne
http://www.auto-insurance-claim-advice.com/