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Considering ridesharing for extra cash? What you need to know about liability and insurance coverage

Ridesharing insurance coverage and liability

Picture this: Instead of a yellow taxi picking you up for a crosstown trip, a BMW or Mercedes-Benz shows up, sporting a pink mustache on its front grille. Rideshare vehicles come in all different makes and models. Fares are often lower than traditional cabs, allowing you to ride in style while saving a few dollars. Passengers set up an account that includes payment information and then use a cellphone app to enter their destination and make a request for a ride.

It sounds simple and straightforward, but the ridesharing market is fraught with unresolved legal and insurance issues. Before signing up as a driver (or as a passenger) with a ridesharing service, carefully consider the often-overlooked costs.

The big players in the rideshare market are Uber and Lyft. In most cases, riders are not sharing rides as in a car pool, but hiring drivers to take them directly to a specific location.

Rideshare drivers face complicated insurance issues

Rideshare companies make driving for them sound appealing. For instance, Uber claims they help drivers turn a car into a "money machine." However, it's not as easy as it sounds. Uber claims to offer their "independent contractors" flexible schedules, no boss to deal with, and the choice of where and whom they drive.

However, different driver requirements muddy the waters a bit. In describing drivers' insurance requirements, Uber divides driving time into three periods:

  • Offline: not seeking business.
  • Online: driver mode on, but no trip yet accepted.
  • On trip: driving to pick up and transporting a person.

Uber requires all drivers have a personal auto insurance policy, which covers the driver and vehicle when they are offline or online but not on a trip. Uber says it provides additional types of insurance coverage for its drivers, including:

  • $1 million "on trip" commercial insurance that covers a driver's liability for injuries or damages to third parties.
  • $1 million uninsured/underinsured coverage of bodily injuries to occupants of an Uber vehicle involved in an accident caused by another motorist with inadequate insurance coverage or in cases of a hit-and-run.
  • Contingent liability coverage for cases where a driver's personal policy does not provide coverage in the event of an accident.

However, a number of car insurance policies expressly prohibit the use of the insured vehicle for commercial purposes. The companies also retain the right to determine what is and is not "commercial use." In an accident that occurs while on a rideshare job, many rideshare drivers lose their personal automobile insurance coverage. Insurance companies deem ridesharing a "commercial" use of the vehicle, which is prohibited under the terms of the policy. This leads to another casualty in an accident: Since most ridesharing companies will not accept drivers who lack personal car insurance, those drivers become unemployed.

Insurance companies respond to rideshare drivers' needs

One way of ensuring sufficient insurance coverage is taking out a commercial auto insurance policy since ridesharing is a commercial business. However, many drivers find the cost of commercial insurance prohibitive. reports the price tag of commercial vehicle insurance may be up to 10 times the cost of a personal car insurance policy. As a result, many drivers instead rely solely on their personal insurance coverage to pick up what is not covered by the rideshare company.

The result is many unknowns in terms of coverage in the event of an accident, since many insurance companies deny claims made under personal policies if they deem the car was in commercial use at the time of the accident.

Fortunately, options for drivers are on the rise. Several insurance companies are starting to offer rideshare drivers insurance that goes beyond personal policy coverage. Those companies include:

  • Allstate.
  • Metromile Inc.
  • Farmers.
  • Erie Insurance.
  • MetLife.
  • GEICO.

There are several disclaimers for these policies -- each company offers different coverage, and it's often only available in a few states. Prices vary for each policyholder, and some insurers only cover drivers who work for certain ridesharing companies.

What about passengers?

Insurance coverage for riders is still developing. Since accidents can happen anytime, injured rideshare passengers may find themselves with few clear options for recouping their damages, especially when a driver's insurance denies a claim. 

In many states, public concern over the rideshare insurance debacle has motivated regulators and legislators into action.

  • In Louisiana, rideshare drivers must carry at least $1 million in insurance.
  • Nevada lawmakers are considering requiring greater driver insurance coverage in addition to background checks on drivers.
  • Wisconsin enacted a law requiring a state-issued license for rideshare drivers at a cost of $5,000 per new application and/or renewal.
  • New Jersey may impose a 10 cent per-ride fee.
  • In Georgia, proposed legislation extends Uber's $1 million insurance coverage to drivers who accept a ride request but have not yet picked up the passenger.
  • California requires that rideshare companies provide substantial liability coverage, but that coverage only kicks in once the driver accepts a job and ends when the passenger exits the car.

Is ridesharing worth the risk?

Both potential drivers and passengers should consider the risks associated with using a service such as Uber or Lyft. Drivers are encouraged to talk with their insurance company to understand the risks and coverage options. Since many states are working toward regulating such services, keeping an eye on legislation may ease the concerns many drivers have about using ridesharing services.

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