Can any individual take out an insurance policy on a car that they do not own and collect?

Answer 1

Yes and no.

The answer to the question goes to the concept of "insurable interest". This is a legal principal that refers to the fact than a person must have an interest in the object of the insurance. It is this that distinguishes insurance to a wagering agreement. The essence of insurable interest is that the person taking out the policy must stand to lose something (in the case of a car, economic value) if the car is damaged or destroyed.

More often than not, physical damage insurance is purchased by the owner of a vehicle. It is then clear that an insurable interest exists because he/she/it stands to lose if the vehicle is damaged or destroyed. Therefore, the insured can collect.

Someone who does not own a vehicle may also have an insurable interest sufficient to support an insuring agreement. Examples would be someone who leases a car and is required to return the car at the end of the lease in essentially the same physical condition as it was at the lease inception. Another example would be a person who does not own the car but has a right to use it. The right to use it has a value and is therefore a sufficient insurable interest to support an insuring agreement.