How Auto Insurance Applies If a friend Drives Your Car

Insurance carriers request all drivers who live in the same household to be listed as drivers on the auto insurance policy. That way they can collect enough premium for the risk. But human behavior dictates there are times when someone wants to ‘lend’ their car on a short term basis to a driver who doesn’t live in their household. 

Definition of Permissive Use

Many auto insurance policies are ‘permissive use’ . This means your policy will pay for a liability loss if it’s being loaned to another person, not listed as a driver on your policy

Liability – Follows the Car First, Driver Second

There are many myths floating around regarding your auto insurance and who is responsible to pay in an accident. One myth we’ve heard from clients is the assumption that if they loan their car to a friend, the friends car insurance policy would pay in case that friend was involved in an at fault accident while borrowing your car.
According to the Insurance Information Institute, most state laws dictate that the vehicle’s insurance policy pays primary when involved in an accident. This is true in Colorado as well.   If that policy limit is exhausted, then the drivers policy can pay secondary.

3 Requirements for Permissive Use to Provide Coverage

• The policy holder has to give ‘permission’ for use of their car
• The driver must to be a legally licensed driver
• The car is lent without monetary compensation

Problems with Lending Your Car to A Friend

• May have reduced liability limits, or restricted coverage
• May not provide coverage if guest driver uses the car for business purposes, racing or loans the car to another person who didn’t directly have permissive use from the vehicle owner
• You could be held liable if your policy limits are exhausted
• Your insurance costs may go up after an at fault accident
• Your damaged car may have diminished value after an accident
• Your friendship can become strained if your car is damaged and your auto insurance increase due to a friends accident while driving your car

Check Your Policy and State Laws to Verify Permissive Use Coverage

There is no such thing as ‘standard coverage’ on an auto policy. Make sure to read your policy in its entirety and get written coverage confirmation from your carrier or agent before you lend your car to a friend. As the owner of the car, you ultimately have liability if your car is involved in an accident, regardless of who is behind it’s wheel.
Even if you policy pays out — if the injuries and property damage exceed your policy limits, you could be held liable for the remaining liability costs.

Give us a call today and speak with one of our licensed agents. We are a local insurance broker on the west side of Denver in Golden Colorado. We serve the communities of Arvada, Wheat Ridge, Littleton, Lakewood, Morrison, Evergreen and Clear Creek and Summit County.