Whose insurance pays if you lend your car out to a friend or family member and there’s an accident? Typically, insurance is going to follow the car, not the driver. However, there are situations that are exceptions. Let’s dig into how a borrowed car in an accident works.
Does Insurance Follow the Vehicle or the Driver?
Generally speaking, insurance is going to follow the vehicle. However, it does warrant further explanation and there are exceptions to the rule.
Most insurance companies will allow “permissive use”. This means you have given permission to someone else to drive your vehicle. Assuming the driver has your permission, and they’re in an at-fault accident, both your insurance and their insurance may be applied.
Let’s say you’ve lent your vehicle to your dear friend, Carl. He then proceeds to crush your beauty into the back of an SUV. Your insurance is going to pay first. If your policy limits are exhausted then Carl’s insurance will start to pay.
In other words, your insurance is primary. So, it’s not as if Carl’s insurance is completely off the hook.
EXAMPLE:
Your policy has $50,000 in Property Damage Coverage. The damage was $75,000 because Carl here decided to eat the rear end of a GMC Yukon Denali. Nice vehicle. Your insurance paid up to its limit of $50,000 which is $25,000 short. Carl’s policy paid the remaining $25,000.
By the way, this is why it’s not wise to purchase cheap insurance with low limits. Our article on Auto Insurance | Choosing the Right Coverage Limits will show you exactly what to look for when shopping for car insurance.
According to the Insurance Information Institute, about 1 in 8 drivers don’t have auto insurance.
When Insurance Does Not Follow the Vehicle?
There are times when insurance does not follow the vehicle. In these scenarios as the owner of the vehicle, you would not have coverage when your borrowed car is in an accident.
Permissive use
The person driving the vehicle has to have permission from the owner of the car.
Illegal activity
If the person driving the vehicle is committing a crime. Getaway car for a robbery? Insurance is not going to follow the vehicle.
Commercial use
If you lend your car out to a friend and they use it to drive in a business. Examples would be using your car to take supplies to a worksite or driving for Uber.
Excluded drivers
Everyone of driving age who lives in your household must be listed on your auto insurance policy. Even if they will never drive any of the household vehicles they still have to be listed on the policy. They’ll just be shown as an excluded driver. Even with permissive use, an excluded driver will never have coverage on your policy.
Rental cars
Your insurance will extend to a rental car, provided you’re in the US and sometimes Canada. Rental car companies will give you the option to purchase their insurance but you do not have to take it to have coverage. An exception to this would be if you have Liability only on your vehicle. More on that topic in Should I Buy Rental Car Insurance?
Medical Payments coverage
Covers injuries to the driver or their passengers. This can be applied to drivers operating someone else’s vehicle in addition to driving their own vehicle.
Can You be Held Liable if Someone has an Accident with Your Car?
As we mentioned earlier, your friends insurance is going to be primary and yours is secondary. With that being said, yes, you are liable for possible property damage and bodily injury caused by an accident.
So, before you hand over the keys make sure your buddy has car insurance in place, otherwise you will be taking full responsibility for an accident.
If you have further coverage questions about your borrowed car in an accident, feel free to reach out to us. We would love to help.
Frequently asked questions
Your insurance is primary and their insurance is secondary. So, yours will pay first and if your limits are exhausted your friends policy will kick in for the remainder. Also, they must have your permission to drive your car. Insurance companies refer to this as permissive use.
Rental cars are a bit different in that the driver’s car insurance is primary. If you only have liability only on your policy, you will not have “full coverage” on the rental vehicle. Consider purchasing additional coverage from the rental car company if that is the case.
Assuming you have given them permission to drive your vehicle, yes, you can be held liable. Your policy is primary but if your limits are exhausted your friend’s policy is responsible for the remainder.
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