When you hand someone the keys to your car, you're handing over your car insurance coverage, too.
- If your family member or friend or colleague causes an accident in your car, it is your insurance that pays -- and your rates that rise in response.
- Once your insurance hits its limits, the borrower's policy kicks in.
- If he or she doesn't have a policy, then you as car owner are on the hook for the damages that insurance doesn't cover.
Clearly, your finances are at risk if you let the wrong person drive your car.
Who does your policy cover?
The drivers listed on your policy are always covered with no restrictions.
After that, you could face additional risks.
Typically anyone driving your vehicle with permission is covered, but some insurers put restrictions on coverage of drivers not listed on the policy, says Penny Gusner, consumer analyst for CarInsurance.com. A few of the more common ones are:
- Drop-down limits: This policy provision will drop the coverage for anyone not listed on the policy to the state minimums, even if the user has your permission. This will often be a dramatic reduction of coverage.
- Double deductible: This doubles your deductible on your collision coverage for any non-listed drivers. A $500 deductible is now $1,000.
- No physical damage coverage: This means that if a driver not listed on your policy has an accident, your insurer will pay the third-party liability damages but not to repair your vehicle.
A friend or family member who is living with you or driving your vehicle on a regular basis should be listed on the policy, Gusner says. If you have a teen driver, adding him or her to your policy as soon as he or she gets a license is important.
Even if your policy doesn't have permissive restrictions, as car owner you are responsible for paying the deductible needed to repair the car. Even if you were not driving, your rates will probably rise, Gusner says.
And if the damages exceed your policy limits, the victims could come after your personal assets. Nothing can stop someone from suing you.
"Insurance is never 100 percent in any case," Gusner says.
Watch out for exceptions
Some very cheap insurance policies restrict coverage to the named driver only. In those, there is no such thing as a permissive user, and you would not be covered if a friend drove the car and wrecked it. In fact, you would be personally liable for all the damage inflicted by your car as well, Gusner says.
Almost all car insurance policies for private vehicles exclude coverage for business use. For example, if you deliver pizzas, you need a commercial policy.
Insurance companies and peer-to-peer car-rental companies such as Relay Rides are still arguing over how liability should be handled when private car owners rent out their cars.
Insurers argue that letting strangers behind the wheel adds risk to the policy, risk they have no way of assessing.
"Peer-to-peer car sharing services are doing a disservice to customers by not disclosing they are putting their personal insurance and perhaps their own assets at risk," says Loretta Worters, spokesperson at the Insurance Information Institute. "Customers should be aware that if their vehicle is being used as a commercial venture, it should be insured with a commercial policy."
Gusner's advice before joining any car-sharing program is firm: Do your research. Make sure you're not violating any portion of your personal auto insurance contract. And, she says, "look into the insurance that the car sharing plan has in place to make sure it's financially fit to payout high-dollar claims, if the worst-case scenario occurred."