Does someone want to borrow your car? Lending a vehicle to a friend or relative is a common occurrence. This friendly favor can be offered without fear of losing your insurance coverage, but there are some general guidelines to consider. Of course, you should never allow a stranger to use your vehicles. And if you are selling your car or truck, before they take a test-drive, always verify that the prospective buyer has their own coverage. A current ID card or declarations page should be available with the most up-to-date effective dates. The policy number, name of carrier, and VIN of the car or truck should be listed.
To begin to understand how an auto policy operates, you first need to know that coverage is written to apply to a particular vehicle, not necessarily to a specific person. The personal policy covers the car and an “insured” driver, and defines this “insured” driver as “any person using your covered auto." This can be a friend, relative, co-worker, or a complete stranger. Members that reside in your household are generally covered on all vehicles on the policy, unless specifically excluded. Thus, the insurance company pays for the damages.
If excluded, that member often has their own policy or an SR-22 bond that provides basic benefits. SR-22 bonds are expensive but are required in many high-risk situations. Typically, the bond must be kept for up to 36 months. Minimum liability coverage is provided, so benefits do not match what is offered through standard auto policies.
But there are many exclusions which are designed to clarify this statement. One of the most important relates to permissive use. In order for someone to be covered while using your car, that person must have permission to use the car. However, if someone steals your vehicle and causes property damage, that also would be covered, even though permission was not granted. And thus, resulting damages, including to the vehicle and other objects it hits, are typically covered.
Typically, the maximum property damage limits on automobile policies are between $25,000 and $100,000. High-risk policies often have significantly lower property damage and bodily injury limits. Because of the value of newer vehicles, $50,000 should be the minimum amount of coverage on your personal policy. If your bodily injury limits are $100,000/$300,000, then $100,000 of property damage will be available. Personal umbrella policies provide added liability coverage and should be considered for households that own boats, personal property, or have a large amount of assets.
Do I Need To Notify My Insurance Company?
In most situations, a friend who allows another friend to borrow their car is a short-term arrangement. It may be for just an hour to run errands, or it may be a few days. Occasionally, the favor may last a very long time if you are helping someone that needs a car for regular use. Although uncommon, lending out a vehicle for long-term use is not recommended. But if you are contemplating doing this, your current carrier should be told. Depending on the company, some restrictions may apply. You can request this information from your carrier.
It is always a good idea for you to notify your insurer in writing (fax or email is fine) if someone borrows your car. This will protect you in the event of an accident claim, as the carrier will already have information on file that would corroborate the chain of events that may have led to an accident. Notification is not needed for short-term use. This would only apply if the borrower will be using the vehicle for 24 hours or longer. Notifying your local broker is also recommended.
However, contacting your agent over ANY use is the safest option. NOTE: If the person using your vehicle is a new member of the household, this is a completely different situation. In most examples, the new driver will have to be listed and/or rated on the policy, especially if they have no existing coverage. If they have numerous tickets and accidents on their MVR, they may be excluded from your policy. Generally, it's not wise to lend a vehicle to a youthful or inexperienced driver. The likelihood of an accident is very high.
If you are lending to a friend for a longer period, it is most definitely recommended that you notify your insurer of this regular usage. Your insurance company will want to obtain important information from your friend including name, address, driver’s license number, and their driving history. Where they keep the vehicle at night may also be a concern. Vehicles should never be lent to persons that will be keeping the car or truck in a different state.
While the policy covers the car, the insurance company’s underwriter is very interested in the driving record of the person who will be operating that car. Also, other members of the household may have to meet underwriting guidelines. If there is a youthful operator in the household with a suspended license or many violations, they may be asked to be excluded from coverage. Proof of an on-force policy with another carrier may be required.
Where Does My Policy Say That?
If you review your policy, you may not find any written requirement that you must inform your insurance company of a friend who may be driving your vehicle. However, if you attempt to deceive your insurer by intentionally misleading them regarding who drives the car on a regular basis, this can be construed as insurance fraud under some circumstances, which will void your policy, and may also be considered as a criminal offense. The risk is too great, so always alert your broker or carrier about any household driver changes. The carrier should also be notified of any changes to the title and registration.
Of course, sometimes people just forget to add a driver to a policy. But to “forget” for a few weeks (or a few months!) will cause some problems and a big financial mess if there is a accident involving the vehicle. And yes...your policy could be terminated. A bigger risk would also be taken for the potential dollars you may have to pay if there is a judgment against you. For example, a $100,000 verdict may be covered by the other litigant's uninsured motorist protection, but the insurance carrier may seek restitution that is potentially payable for decades. It is also possible they may settle for a lower amount.
For permanent situations, it is best to contact your insurer and add the additional driver to your policy. This will give the insurer the comfort of knowing what type of risk they are actually accepting by covering your car, and it will give you peace of mind knowing that there will be fewer problems in the event that you have to make a claim under the policy for an accident. Also, if an uninsured motorist hits your vehicle, it will be very helpful to have all drivers properly listed and accounted for. Otherwise, there's a strong possibility that the claim will be challenged, and possibly denied.
Note: If your car or truck is stolen, damages and liability are covered. Depending on whether you have collision and comprehensive benefits, or just liability, there may be some significant out-of-pocket costs for the replacement or repair of the vehicle. Typically, if a vehicle is worth more than $5,000, full coverage should be retained. Antique and classic vehicles can be insured for their stated value although a current appraisal is typically required. A new appraisal may be required every 5-10 years since the market value can quickly change.
What Your Policy Covers
Drivers can take comfort in the fact that their personal auto policy will cover you and anyone who operates your car as long as they are driving with your permission. If you are lending your car to anyone for an extended period, be sure to notify your insurance company. If that person has a poor driving record, be prepared for the potential increase in premium. You may even find that your insurer will not accept the new driver if their record is very poor.
Always approach your insurance company with full honesty, and never submit false statements to your carrier about who is driving your car or you may be looking for a new company at the most inopportune time! Typically, your agent or broker will review the best options, and explain how to quickly implement them if you need quick coverage. Brokers do not charge fees and are always licensed in the states where they market or service coverage.