Insurance Liability?

Question

If someone cosigns for a car loan (for a college student) and then that college student driver gets in an accident that results in a law suit...

1) Is the cosigner at risk to lose their assets if the "college student driver" has no assets??

Or...

2) Are the parents of the college student the party which is at risk??

Does an Umbrella Insurance Policy need to be taken out by the co-signer or the parents of the driver?

Please only answer if you really know or have had experience with such. Thanks.

Answer 1

First are you a co-signer (just guaranteeing the loan) or a co-owner? You would have much more liability as a co-owner - you would have to be sure you are named on the policy as a joint owner and if I were you I would be sure the college student had the maximum liabililty limtis available ($500,000 single limit in most states, some companies offer more). If you ar afraid he or she can't maintain this level, offer to pay the difference in cost. An umbrella normally doesn't start until the auto liaiblity limits are exhausted & the minimum required is usually at least $300,000. An umbrella policy is always a good idea to protect your assets anyway. It is cheap too for the coverage you get.
I am not saying you don't have any liability as a co-signer. There was a case in my area that a grandmother GAVE her grandson a gift of some money & he bought a car with it. He had a major accident & she was sued & lost (they put liens on her house). She was NIEITHER a co-signer on a loan or a co-owner on the car. But, she had assets, the grandson didn't & this was the theory of "deep pockets" & also, someone had a good attorney.
There is an exclusion on the auto policy regarding the liability of a vehicle owned by a resident relative so the parent's auto policy would not respond to the child's car accident in his own car. (I am assuming here you are in the US)
Why aren't the parents co-signing?? My father did for me on my first car.

Answer 2

1. A "cosigner" has absolutely NO ownership interest in the car. They are ONLY guaranteeing the loan. That means, if the student doesn't pay the loan off, the cosigner has to, AND the student still owns the car. I do NOT recommend cosigning as anything except a "gift" to the person who needs the cosigning.

2. If the college student is a dependent of the parents, either living at school or living at home, then YES, even if they are over 18, the parents can be sued. I had a 26 year old guy who lived at home with his parents once. He hit a car, while driving drunk, and the other guy was paralized. The parents' got drawn into the lawsuit, even though the car was in his name, not the parents. THEIR UMBRELLA ended up paying out $1,000,000 to this guy.

Regarding the umbrella. If the cosigner has no ownership interest, and doesn't drive the car, it's pointless - they have no maintenance responsibility or ownership interest.

The parents - well, that depends on their assets. Just having a car for your kid doesn't automatically mean you need an umbrella. You ALSO have to have assets to protect. The parents need to sit down with the kid, look at the liabiltiy limits on all auto policies, look at the assets, and make the decision from there, with their agent.

Answer 3

The co-signer is only responsible to the loan company, and only to the extent of the loan.
It would be very hard to place any liability for an accident on him. They would have to prove that the car owner was an out and out irresponsible nut who should never have had a car, and that the co-signer knew it, and even then, it's doubtful.

Answer 4

The Cosignee aka the actual owner of the car, should have had full coverage insurance, which is required with an auto loan.

WOW, you guys are in deep doo doo!