Borrowing and Loaning Out Cars — How Insurance Is Affected

A busy family, spouses, and roommates often share one another's cars. Some share a single car on a regular basis, while others borrow people's cars sporadically when the need arises. But all this car sharing leads to important questions about its insurance coverage. How is a shared car covered? Who is covered? What rules must you follow? And how can you ensure that everyone has the coverage they need?

Discover some answers to your questions. 

Who Insures a Shared Car?

In general, the car's titled owner is responsible for buying and maintaining appropriate insurance for it. Each state has its own rules about minimum coverage. If you're not sure whether or not a car you borrow is properly insured, clarify before driving it. As the driver, you could be on the hook for financial damages if you cause an accident.

Do All Drivers Need Listing?

Anyone who wants to regularly share a car should start by listing authorized drivers specifically on their policy. Many policies require that the policy include the names of all drivers who live in the same household, are married to the car owner, or who drive the car often. If you fail to list such a driver, the insurer could refuse to pay a claim put in while they were in control of the car.

So, when your household or family makeup changes, contact your insurance agent to keep the listed drivers updated. Include too many drivers on a policy rather than too few. For instance, some companies consider a college student living temporarily in a dorm to remain part of your household. Others may not. So adding them as an authorized driver ensures no surprises.

Are You Covered When Borrowing a Car?

What if you just want to loan your car to a friend whose own car is in the shop? Are they covered? In general, yes. Most insurance coverage follows the car, not the driver. So as long as the driver has permission from the titled owner or policy holder to drive it, they are a covered driver. 

How Is Permission Given?

What, though, constitutes an authorized driver? This is a fairly broad term that applies in two main ways. The first is explicit permission to use the car or truck. Your roommate asks to borrow your car, and you say yes. Or perhaps your adult child asks to borrow the car specifically to drive to college classes. By saying yes, you explicitly give them permission—but you may qualify that permission so only driving to and from class is covered.

The other type of permission is implicit. If the keys to a family car are hanging on the wall and all family members are told they may use that car, permission to drive it is implicitly given every time they do. Similarly, if your roommate grabs your keys and you see them taking those keys but do not stop them, you give them implicit permission through your lack of objection.

What About Business Use?

There is one important caveat with sharing cars. This is business use. Most personal auto policies exclude coverage while the vehicle is for business purposes. So if your roommate wants to use your car to deliver pizzas, provide paid ride-sharing, or rent it out to someone for money, the vehicle may not be insured.

If anyone wants to conduct income-producing business activities, they usually need to purchase a specialty business auto policy. Policies are now available with rideshare, car sharing, and other entrepreneurial endeavors in mind.

What About Rental Cars?

While auto insurance follows the car, it also follows the driver in many cases. This can be confusing, as each policy has its own unique clauses. But you are often covered while operating someone else's vehicle, under the conditions and limitations of your own insurance.

What if you are the client in a business activity? While the car owner may not be covered while car renting or sharing, the client may be covered by their own insurance. They have been given implicit permission to drive that car by entering into a contract—even informally—to do so. So if the vehicle owner's policy does not kick in, your own likely would.

Where Can You Learn More?

As more and more Americans find themselves living in unusual home situations, staying at home longer, or starting side hustles, insurance issues regarding shared vehicles become more important to sort out.

Start by meeting with the team at Illinois Insurance Center. We will analyze your current coverage, compare it with your actual driving habits, and make sure you have the right insurance to protect yourself and your loved ones. Call today to learn more. We will be happy to go over any questions or concerns you have about your specific driving situation.