The practice, known as 'fronting', usually happens when parents take out a policy in their own name in a bid to save their child money on their premium, but it is actually their child who is the main driver.
Research from Privilege car insurance found that more than two million drivers risk having their policy cancelled with no premiums refunded, claims being refused and difficulty obtaining insurance in the future.
A further one million 'phantom' drivers have been named on policies for a vehicle they have never even driven, the data revealed.
There is also an alarming level of confusion around what level of cover a driver has when they are behind the wheel of someone else's car but are not named on the policy.
One in five car owners who drive regularly believe that they would be covered for damage to that car, perhaps unaware that the Driving Other Cars (DOC) extension cover does not pay for damage to the vehicle they are driving. This means they are unprepared for the costs of their repairs in the event of an accident.
Meanwhile, a worrying three per cent of drivers who do not own a car admitted they have driven other cars belonging to family and friends without being named on their policy, effectively meaning that they are driving completely uninsured.
Charlotte Fielding, head of car insurance at Privilege said: 'It is vital that drivers ensure that they know under what circumstances they can drive cars that they are not named on the policy for and understand the liability they are accepting by doing this.'
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