Understanding the risks and auto insurance consequences in different common driving situations is important. Let’s review what you should know about auto insurance coverage when you:
- drive someone else’s car
- lend out your vehicle
- rent a vehicle.
What to know about auto insurance when you lend your car
What happens if you lend your car to a friend and they wind up in an accident? The answer is that even if the accident was their fault, the bill is going to fall on you initially.
“Insurance follows the car, so if you lend somebody your car, you’re lending them more than just your vehicle; you’re lending them your insurance,” explains Lynne McChristian, Florida representative for the Insurance Information Institute (III), an industry consumer group.
“From the car owner’s point of view, the person who is borrowing the car doesn’t have as much to worry about as the person who is lending the car.” Even though you weren’t in the car when the accident occurred, your insurer may still raise your insurance rates.
Why? They may sense that your misstep in lending your car to someone who wrecked it makes you a higher risk moving forward.
That said, depending on the severity of the accident, it can matter significantly if your friend has their own auto insurance policy. Here’s why: Say you have your state’s minimum of $100,000 liability coverage and the damages in the accident totaled $150,000.
Your policy would cover the initial $100,000 liability less deductible, after which your friend’s auto liability insurance, if any, would be targeted for the rest as secondary coverage. It will be up to you and your friend to work out who pays out of pocket for each deductible.
If your friend lacks auto insurance, however, you may be on the hook alone for the damages, including property damage and medical fees for the injured.
“Understanding that might make you think twice about who you lend your car to,” McChristian quips.
What to know about auto insurance when you drive someone else’s car
If you’re the one that is going to drive someone else’s car, there are several questions you’ll want to ask beforehand to protect yourself in the event of an accident. These include:
- Do I have your permission to borrow your car? It’s worth a chuckle to ask, as failure to do so could result in legal trouble if you encounter problems on the road.
- Is your car properly insured per state liability regulations? If it’s not and you’re involved in an accident, you could be held liable as the driver. Should you receive a ticket for driving without insurance, it will be noted on your driver’s license, not the owner’s.
- Where are the insurance and registration documents located in the car? You’ll be asked to produce them in the event of an accident.
- Can the car borrower’s auto insurance rate take a hit for having an accident in a borrowed car? “That’s possible, particularly if the limits for the owner’s car are exhausted and the borrower’s policy must be tapped (for damages),” says McChristian.
“The reason I say it’s possible is because it will work differently based on different insurance companies. The accident would be on the borrower’s record because that goes against your driver’s license; it doesn’t have anything to do with insurance.”
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What to know about auto insurance when you rent a car
How does the car-lending dance change when you decide to rent rather than borrow a car? Primarily, the focus shifts to you as the driver and how your auto insurance measures up. It becomes secondary to the primary coverage provided by the car rental company.
“Yes, insurance follows the car, but as a driver, you sign all kinds of forms when you rent the car that people typically don’t read. Insurance follows the car but you are personally responsible for damages,” McChristian explains.
It’s a good idea to talk to your insurer before you rent a car or drive someone else’s vehicle. If you have comprehensive and liability, you typically do not need to buy extra coverage from a rental company.
City dwellers who don’t own a car and instead use car rental companies or car-sharing services, such as Sixt, Turo, and car2go, to get around have another auto insurance possibility at their disposal: the non-owner policy.
Unlike conventional auto coverage, the non-owner policy follows you, the driver. That guarantees that you’ll always have full coverage, even if your rental car does not.
“A lot of urban dwellers who rent cars frequently should check out non-owner auto insurance,” says McChristian. “Millennials who like the city lifestyle but want the convenience of driving when the mood suits them are another group that should consider non-owner coverage.”