Let's say you loan your car to your buddy to run some errands and you end up getting a call a few hours later with some bad news: Your friend was involved in an accident and there's some damage to your car. While this may cause you to steam at the ears, you might not realize that you're the one on the hook when it comes to your auto insurance. Even if you weren't driving, your car insurance policy follows your car, not necessarily the driver. It's one of the most common misconceptions about loaning your car to a friend, and if you're not careful, it could end up costing you.
Why insurance follows the car
There's a chance the friend who crashed your car had great auto insurance coverage with a low deductible and high limits on repairs. But it won't matter if the accident happened while he was behind the wheel of your car. For this reason, you should carefully consider who you loan your car to. Getting enough car insurance to cover you in the case of an accident is also a good idea for the best financial protection.
Insurance policies typically extend over drivers in one car rather than following each individual driver, because there are many with drivers licenses who don't have an insurance policy under their own name. This could leave them vulnerable in an accident. Teenagers or those who don't own cars are therefore protected under the vehicle's policy in most circumstances.
If the person you loan your car to has insurance, their policy will usually be considered secondary coverage. In most states, your insurance will only be liable if the accident was caused by the person driving your vehicle. If it was caused by another driver, it is the responsibility of that person's insurance company to pay for damages.
Coverage for other drivers
In general, when you give someone permission to drive your car, they are covered by your vehicle's insurance. This is called permissive use and can be applied to any driver, family member who lives with you or children - even if they are away at college - if you give them permission to drive your car. However, if it's someone who will be driving your car more frequently, it's a different story.
"When you have someone you employ, such as a nanny or a nurse who will be a regular driver, contact your insurance agent about your coverage," says Jeanne Salvatore, senior vice president of Public Affairs and consumer spokesperson for the Insurance Information Institute. "He or she may need to be added to your policy."
If someone drives your car without your permission and they get into an accident, you're not liable for the damages. In the case that a thief steals your car and crashes it, your insurance will likely cover the damages. However, if it's a friend who borrows it without your permission and there is damage, it's likely that their insurance will be considered the primary coverage policy. If they don't have insurance, your insurance might pick up coverage.