It’s a familiar scenario: Your friend’s car is in the shop, so you lend him your wheels for the weekend. Or your neighbor asks to use your SUV to move furniture that won’t fit in her sedan. Most of the time, the borrowed vehicle is returned without incident. But what happens when you receive a call or text telling you that there’s been a fender bender?
“Many people assume it’s the driver’s auto insurance that will pay the bill, but that’s not the case,” says Christine Barlow, managing editor at FC&S, a division of The National Underwriter Co., and author of Personal Lines Unlocked: The Key to Personal Lines Underwriting. “Generally, insurance follows the car, so if you loan out your vehicle to another person, your policy provides the coverage.”
Bob Passmore, assistant vice president of personal lines policy at Property Casualty Insurers Association of America (PCI), agrees, adding, “If you give someone the keys, you’re giving them your insurance.”
Still, that rule of thumb comes with plenty of caveats. To avoid paying a deductible or even seeing a rate hike as the result of someone else’s time in your vehicle, it’s important to understand what your policy covers and how it works before anyone else climbs behind the wheel.1
Who’s at fault?
If your friend borrows your car and is rear-ended, it’s always your responsibility to notify your insurance company of the loss, regardless of who you may think is at fault. The insurance company ultimately determines liability while investigating the claim. Depending on the extent of the damage, a deductible may be applied and your premium could increase.
To avoid changes in your premiums, consider the driving record of the person borrowing your vehicle. Asking for a list of moving violations probably isn’t feasible (or socially comfortable), so instead consider a gut check: Does this person tend to speed or act aggressively while driving? Are they easily distracted while driving? Have you ever been nervous while in their passenger seat? Those red flags suggest you’re better off politely declining.
For unexpected troubles, like a tree branch that falls on your car while under your friend’s care, it’s again your policy that would bear the claim (called an other-than-collision loss).
When two becomes three
If you collide with another vehicle while driving your own car, two insurance policies are at play: yours and the other driver’s. But when you lend out your vehicle, Barlow says there potentially could be three policies: your policy, your friend’s policy and the policy of the other driver.
Let’s say the driver borrowing your vehicle is found at fault. That means the claim will be made against your insurance policy, which could result in a premium increase. “You and your friend can work out any sort of arrangement you like – maybe him paying the deductible for you or the two of you splitting the deductible – but your insurance company will handle the claim according to its guidelines,” Barlow says. “You can’t decide yourselves which policy to use.”
Length of lending
Barlow cautions that the condition of the borrower’s own vehicle – i.e., whether or not it’s currently out of commission – also can influence interpretation of the policy. “With insurance policies, it’s all about the definitions,” Barlow says. Spending a few minutes with your policy details and reaching out to your insurance specialist when needed can help ensure you understand any perils of lending out your keys – and putting your policy on the line.