If you let your best friend borrow your car and he speeds through a red light and crashes, whose car insurance policy pays for damage done to your car and others harmed in the accident?
If you said his, you'd be dead wrong.
Typically, an auto insurance policy follows the car, says Tully Lehman, spokesperson for the Insurance Information Network of California. Thus, as the car owner, it's your policy -- and your future car insurance rates -- at risk if someone who borrows your car causes an auto accident.
Why are you on the hook even when you aren't the one driving?
Mostly it's because many people are licensed to drive yet don't have insurance policies in their own names - teenagers, for example. A state-mandated liability policy linked to the vehicle ensures that there is always a way to pay if any driver of the car is at fault for injuries or property damage.
Here's a rundown on which types of car insurance coverage follow your car and which follow you as a driver.
Liability coverages follow the car
The guy who borrowed your car may get the ticket and the driver's license points, but it's your insurance that will pay if he caused the accident.
Mark LeMaster, general counsel at SafeAuto Insurance, says, "Lending your car -- called permissive use -- is generally covered."
Your bodily injury liability and property damage coverages will pay for damages or injuries that others sustained, up to the limits of your policy.
If the damage exceeds your liability limits, then the driver's own policy may be tapped as secondary coverage. "This is only the case if the driver's liability limits are higher than the car owner's limits," says CarInsurance.com consumer analyst Penny Gusner.
Heaven forbid you both bought the bare-minimum policy.
"Minimum coverages for damage to property are as low as $5,000 in some states," notes Jeff Little, associate general counsel for SafeAuto.
If an auto accident results in $50,000 in damage, you would still be on the hook, along with your friend, if the victim chooses to sue for whatever amount insurance doesn't pay.
Collision and comprehensive follow the car
Collision and comprehensive, which pay to repair or replace your vehicle if it is damaged in a collision, stolen, or damaged by natural disaster, also follow your vehicle.
Your friend may have collision coverage of his own, but it doesn't apply to your vehicle. "It wouldn't be fair for your friend's insurer to have to pay for the total loss of your Mercedes E-Class when his premiums are based on a Ford Fiesta," Gusner says.
Your friend may get surcharged by his own insurance company for any ticket that lands on his driving record, but the claims for your car go through your policy.
Medical coverages follow the driver -- and sometimes the car
Medical coverages of personal injury protection (PIP) and Medical Payments (MedPay) follow the driver. The medical coverages' benefits are based on people, not the insured vehicle, so can move with you and your family if you're driving or riding in your own vehicle or someone else's.
Your PIP and MedPay coverages pay out no matter who is at fault for your injuries and, depending upon the terms of your coverage, may even follow you when you're walking or biking.
Medical coverages through your car insurance policy can also follow the car. If your passengers don't have medical coverage of their own, your MedPay or PIP coverages can extend and pay, up to your limits, if occupants of your vehicle are injured in an accident.
When you rent a car
Collision and comprehensive will usually follow a policyholder when he rents a car since the rental car is a substitution for the person's insured vehicle. The payout may be limited to the value of the vehicle insured; that is, if you own a Kia but rented a Lexus, the collision policy would pay the value of the Kia.
Your state-required liability insurance follows you, too.
MedPay or PIP coverages follow you in a rental car as well.
When you borrow a car
Your liability coverage steps in only when the car owner's limits are exceeded, and then only if your limits are higher than his.
Your collision and comprehensive coverage do not apply to a borrowed car.
Your PIP and MedPay follow you in a borrowed car.
When you buy a cheap car insurance policy
Cheap car insurance policies get that way by eliminating risk, Gusner says - by not covering claims that might be handled under a more typical policy. Some examples to look for:
- "Named-driver-only" policies will cover only those listed on the policy and not extend coverage to permissive users.
- "Step-down" policies lower liability coverage to your state's minimum requirements for permissive users, even if you pay for higher limits.
- Double deductibles for collision claims when a non-named driver is at the wheel.
- Policy coverages won't extend to a rental car.
Clearly, policy terms vary greatly. A periodic review of your coverage is wise, no matter who is driving your car.