State laws and insurance company guidelines vary, but some carriers have a clause in their policy that lowers the limits to state minimums for permissive drivers.
When the limits are cut down to the state minimum requirements for permissive users instead of the policyholder’s higher limits, this is typically referred to as a step-down provision. A policy with such a provision typically states that for an insured person other than you, any relative, or resident, the insurer will only provide limits up to the financial responsibility law of the state in which the accident occurs.
Which states allow for permissive use in step-down provisions?
These states allow a step-down provision to be written in a policy:
- New Jersey
- New York
- South Carolina
State laws are changed and amended regularly, so some of these states may change in time to no longer allow a step-down provision, or their courts may rule against it in some cases according to how the judges interpret state laws. To see if your state allows a step-down provision to lower the limits of a permissive user contact your state’s insurance regulator.
Some states specifically do not allow a step-down provision. For instance, Illinois Statute 215 ILCS 5/143.13a states:
Any policy of private passenger automobile insurance must provide the same limits of bodily injury liability, property damage liability, uninsured and underinsured motorist bodily injury, and medical payments coverage to all persons insured under that policy, whether or not an insured person is a named insured or permissive user under the policy. If the policy insures more than one private passenger automobile, the limits available to the permissive user shall be the limits associated with the vehicle used by the permissive user when the loss occurs.
California’s permissive use buy-back program
California car insurance law includes something known as the permissive use buy-back program so that you can buy back your higher limits for these drivers. Remember that not all California car insurance providers will make you buy back your higher liability limits; some auto insurers will extend your higher limits to others that you allow to drive your car, permissive users, without an additional fee being charged.
California Insurance Code, under section 11580.1 (D) Statutory Exceptions to Coverage of Permissive Users, allows the insurance company to include a limitation on permissive user coverage to the state’s minimum liability limits (i.e. $15,000 for bodily injury liability coverages) even though the named insured’s coverage is greater.
The California insurance code does not require the insurer to limit the coverage; therefore companies may vary on whether they limit the liability coverages to the state minimum. The DOI said that there is policy wording and location of disclosure in the policy requirements for the limitation to be enforceable.
Here is the standard verbiage for restricted coverage for permissive users:
- Restricted coverage for permissive users is an optional reduction in coverage in return for a premium credit. The restricted coverage option reduces the bodily Injury/property damage limits in the policy declarations to financial responsibility limits when the insured vehicle is operated by someone other than the named insured, a relative, an agent, or an employee of the named insured in the scope of his employment. Coverage for the named insured, a relative, an agent, or an employee of the named insured in the scope of employment remains at policy limits.
- The named insured must request restricted coverage for permissive users in writing or by contacting the service center.
If an auto insurance company has the clause to lower your liability limits, they may also offer a “buy back” coverage for an additional charge. For companies that do not enforce this limitation, the same limits chosen by the insured would extend to a loss in which a permissive user operated the vehicle, as we explained above.
The California DOI does not have a list of companies that do or do not enforce the limitation on a private passenger automobile insurance policy so when obtaining insurance it is a good question to ask about if a buy back is required if you allow others to use your vehicle and you want them to be covered by your limits that are higher than the state liability amount of $15,000 / $30,000 for bodily injury liability and $5000 for property damage liability.
Most carriers offer coverage without this restriction. If you want to add limited or restricted coverage, you can request it after you buy your policy.
— Michelle Megna contributed to this story.