Lending your car out may be a rare occurrence, but when you do, you feel you are doing the right thing by helping someone in need out. Although, still a good deed, you could be putting yourself at risk without even knowing it. In most cases of car insurance, the insurance follows the car first and the driver second. PIP (Personal Injury Protection insurance) will follow the driver first, so long as they are insured, and the car second. Below are six common scenarios in which you lend out your car and an accident occurs.
Even though you both are insured, your insurance (as the owner of the car) will be the policy to cover damages to the vehicle. The claim for repairs is filed under your comprehensive coverage and you will still be responsible for your deductible. Most insurance companies insure you and permissive drivers—those you give permission to use your car. It is also why insurance companies will ask for all driving-age members of your household, so they can be added to your policy because these are the likely individuals you may lend your car to.
In this scenario, if your friend was injured, they would make a claim for their injuries under their PIP insurance policy. Your liability insurance coverage will also be used to cover any bodily injury or property damage caused by your vehicle. So, if your friend’s injuries exceed their PIP coverage level, your liability insurance may be used to cover the difference. Other types of coverage may also be used, such as additional coverage for medical expenses. Liability insurance will also help to protect you (up to your coverage level) if the other party chooses to sue after the accident.
Damage to your vehicle will be covered under your comprehensive coverage but you will still be responsible for your deductible.
If the property damage is more than your coverage level, then your friend’s car insurance policy may be used as a secondary form of insurance. For example, the other vehicle is deemed a total loss (the cost of repairs is more than the cost of replacing the vehicle) and the replacement value of the vehicle is $35,000. Your liability insurance coverage level is only $25,000 but your friend is also insured for $25,000. Your insurance will pay out the full $25,000 and your friend’s insurance will pay the difference of $10,000. In some instances, to make the transaction smoother for the other party, your insurance may pay the full $35,000 upfront and seek the $10,000 from your friend’s policyholder.
You should never loan your car out to an uninsured driver as this could leave you open to a large liability issue, especially if the crash involved another vehicle. With that being said, insurance follows the car first, then the driver. Damage to your vehicle will be covered under your comprehensive insurance (up to your coverage level) and you will still be responsible for your deductible amount. Damage to the other vehicle or other property is covered under your liability insurance up to your coverage amount.
If your coverage limit is less than the total amount of damages, you will be on the hook for the remaining amount. Also, if the other party sues, even though you were not the one driving or responsible for the accident, you can be listed in the lawsuit because car owners hold vicarious liability for anyone they allow to use their vehicle. Vicarious liability means that someone can be held liable for the actions or omissions of another individual.
Whether their license is suspended, fully revoked, or was never obtained, they should never be allowed behind the wheel of your vehicle. Most insurance companies have an exclusion of coverage if the driver was unlicensed. This means that any and all damages will be your and your friend’s financial responsibility.
You may have loaned it out to them previously for an emergency or they may never have driven it before, but this time, they have taken your keys and driven off without you knowing or without your consent.
If your friend does this and is involved in an accident, notify your insurance they did not have your permission to drive the vehicle. Without your permission to drive the car, your friend’s insurance will be solely liable for all injuries and damages caused by the crash. Your insurance company will label the incident as an “unauthorized use” rather than as theft and may require you to file a police report of the unauthorized use. This will prevent the accident from reflecting on your future rates and will prevent your insurance from paying out for any of the damages.
If your friend was also uninsured, you can use your comprehensive coverage for repairs (keep in mind that you will have to pay your deductible) and your liability insurance may cover damages to the other party involved.
There is some good news about this scenario! If your car is stolen, you will not be responsible for injuries or damages sustained by others if there is a crash. The bad news is that you may still have to use your comprehensive collision coverage to cover the repairs to your vehicle. The reason is the car thief probably does not have any insurance and if they had coverage, the insurance company would deny the claim because the damage resulted from a criminal act. In addition, it is also unlikely that the thief will offer to pay for the damages they caused to your car. In some instances, you may receive restitution (a form of punishment in which the convicted must pay for damages to their victim) but it is not a guarantee and can be a long process before you see any amount of restitution if it is granted.
Keep in mind that whenever your policy pays out, even if you were not the one driving, will stay on your insurance history. So be weary of lending your car to others because their mistakes can cost you. To avoid the above scenarios involving permissive drivers:
Speak with an independent car insurance agent to further discuss potential scenarios and their likely outcomes and make sure you are covered for any scenarios you think may fit with your lifestyle and vehicle lending habits.
