People commonly loan out their cars to friends and family. But what happens when you loan out your car to someone and they get into an accident? Worse yet, what if the accident is the fault of your friend or loved one whom you let borrow your car?
The good news is this – car insurance policies cover the car and not the driver. So if you loan out your car to your neighbor and they cause an accident, you will be responsible for filing the claim with your insurance company.
EXCEPTIONS TO THE RULE
However, there are important exceptions to keep in mind. First, most insurance polices do not cover people you live with unless those people are added to your insurance. It seems odd that the people most likely to drive your car are not covered under the policy by default, but perhaps the insurance companies are trying avoid insuring someone who they normally would not cover. As such, check your policy carefully before loaning your car to someone you live with to understand whether or not they are covered.
Another important exception applies if you are using your vehicle for work-related purposes. For example, assume you own a small flower shop and use your personal car to make deliveries. Now assume further that you ask one of your employees to make a delivery in your personal car and they cause an accident in the course of that delivery. Generally, your personal policy excludes coverage if the vehicle was being used for business purposes, especially if the car was being used for delivery purposes.
Will Your Insurance Cover Everything?
In most states, you are required to have liability insurance for both property damage and personal injury. If you loan out your car to a friend they cause an accident, your liability insurance will cover the damages to the other party. However, if their damages are greater than your policy limit, then your friend’s insurance policy will cover the difference. But be careful, because if they person driving your car doesn’t have their own car insurance, then you will be responsible for anything beyond your policy limit.
WHAT TO DO AFTER AN ACCIDENT
If you loaned out your car to a friend or loved one and they caused an accident, you should consider speaking to an attorney in your local jurisdiction to better understand your rights. Given the potential pitfalls involved with loaning out your car, you may want consider simply giving your friend a ride or having them use public transportation.