Next time you let a friend borrow your car, keep in mind that it could end up being a much bigger favor than you intended.
Roughly 6 million auto accidents happen every year in the United States. Nearly 3 million people are injured as a result, and about 42,000 people die.
Obviously, if your friend is involved in one of those accidents, it’s not a good thing for your car or your friend. But in terms of legal responsibility, it'll probably be much more troublesome if you’re the car owner rather than the car borrower.
“You should really think long and hard before you let someone use your car, because you will be responsible for it," says Ashley Hunter, president of HM Risk Group, an insurance and risk management brokerage in Austin, Texas. "There is nothing you can do. You are kind of stuck. You are going to be responsible for it.”
Your friend's accident, your problem
Why? “The insurance follows the vehicle,” Hunter says.
Arthur Flitner, senior director of knowledge resources at The Institutes in Malvern, Pa., an insurance education group, says: “The basic idea is that someone who borrows your car with your permission is going to be an insured (person) under your policy. … As long as he had your permission to use your vehicle and he used it reasonably within the scope of that permission, he would be insured under your policy."
Even if your friend has his own auto insurance, the damage from an accident probably will be your problem.
“If you lend your car to your friend, then your policy would pay first,” Flitner says. “In most states, there are statutes that require the owner of the vehicle to be responsible in that sort of situation.”
Only when the auto insurance of the owner is exhausted will the victim typically turn to the borrower for money. The owner pays first, then the driver, according to Hunter.
Nor will the troubles end there. If the car owner's insurance company pays a claim on an accident, then the owner can expect his premiums to go up. As far as your auto insurance company is concerned, what matters is vehicle attached to the claim, not the driver, insurance experts say. Points taken off your license, however, are another matter and should affect only the driver.
The situation could be even worse, though. In certain cases, the policy may not recognize the coverage at all. For instance, if your friend borrowed your car to deliver pizzas when the accident occurred, the policy very well may not cover you. Personal policies generally don’t cover commercial use – anybody’s commercial use.
Treatment of regular borrowers
If someone borrowers your car regularly, experts say you should probably consider adding him or her to your own insurance. Repeated borrowers of a particular car should be added to the policy, because that constitutes “regular and frequent use,” according to Progressive Insurance.
The cost of that extra coverage will depend entirely on the added driver. “It really will depend on their driving record,” Hunter says.
Family members who live together generally can be added to the family’s car insurance policy. However, a grown child who drives regularly to school or work should be named as the principal insured person, according to Allstate. But keep in mind principal-driver status for a grown child oftentimes will bump up the parents’ auto insurance premium.
If you frequently borrow cars but don’t have auto insurance of your own, you may want to buy a non-owner policy, Flitner suggests. It’s much cheaper than a conventional auto policy, as it does not cover damage to the car itself but merely covers liability and perhaps personal injury protection.