Who is allowed to drive your insured car?

By Mark Vallet on August 5th, 2012

Loaning a car to a friend or family member can be an expensive favor if an accident happens. When you slip the keys into their hands, you are also sharing your insurance policy.

Your policy is the primary coverage, so it is your insurer that will be paying the bills -- and raising your rates. Making matters worse, if your policy limits are exceeded and the person borrowing the car doesn't have insurance or enough insurance, you could personally end up on the hook for any damages not covered.

Car sharing services like Relay Rides can further complicate insurance issues, letting car owners loan their vehicle to strangers for money.

Renting your car

Relay Rides and similar services helps car owners rent their idle rides. This concept is not only new to car owners, but insurance companies as well. Personal policies don't cover accidents when the car is engaged in commercial use.

In order to reassure renters, Relay Rides carries a $1 million liability policy. A serious accident could exceed that $1 million limit, in theory leaving the owner and his personal policy at risk.

Relay Rides says it is confident that liability falls to the driver not the vehicle owner, but that assertion has yet to be tested in court. For their part, many insurers have updated policies specifically excluding coverage if your vehicle is participating in a car-sharing programs. Others have threatened to cancel polices, raise rates or refuse to renew coverage.

California, Oregon, and Washington recently passed legislation that prevents insurers from cancelling policies if drivers participate in a car-sharing program.

Experts advise drivers to research any peer-to-peer car sharing program they are considering, make sure it has proper insurance and is financially stable in the event of a major accident.

Loaning your car

Coverage is simpler when no money is changing hands. Anyone listed on the policy is covered with no restrictions. Insurance experts recommend listing any friends or family driving your car on a regular basis and listing teen drivers as soon as they are licensed.

Unlisted drivers that have your permission are covered, but there can be some restrictions. Some common restrictions are:

  • Drop-down limits: This provision drops the coverage for anyone not listed to the state minimums.

  • Double deductible: Your collision coverage deductible is doubled if a non-listed driver is behind the wheel.

  • No physical damage coverage: While third-party liability will be honored they will not pay to repair your vehicle.

Even if there are no restrictions attached to your policy, you will still be responsible for the deductible, and there is a good chance that your rates will go up after an accident, even if you were not behind the wheel.

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