You may think it’s no big deal when your friend, sister, or neighbor asks to borrow your car. They’ve offered to buy you a tank of gas and you don’t have anywhere to go for the day, so you decide to be nice and loan it to them.
Unfortunately, being nice can really cost you!
That’s because California has a law called “Permissive Use”. In layman’s terms, it refers to letting someone drive your car who isn’t listed on your insurance policy. Remember, your policy comes with a list of drivers who benefit from your insurance coverage whenever they’re behind the wheel. Your insurance company uses this list to help determine your premium rates. So, if your teenage son is listed as a driver on your policy, you’ll likely pay higher rates (after all, he comes with more risk!), but at least you know he’ll be covered if something goes wrong.
But things get blurry when you loan your car to someone who is NOT listed on your policy. Because California liability insurance follows the car (NOT the driver), if you let someone borrow your car and they get into an at-fault accident, you’re liable for the damages — even if you were nowhere near the scene!
How much are you on the hook for?
If one person was injured or killed, you’ll be responsible for up to $15,000 in damages. If two or more people were injured, that maximum dollar amount goes up to $30,000. If any property was damaged, you’ll be responsible for up to $5,000.
But by the time all is said and done, you could wind up paying much more than that!
If you were negligent when you loaned your car — meaning that you let an “incompetent, reckless, or inexperienced driver” get behind the wheel — your liability is unlimited. Or, if you let one of your employees borrow your car, these liability limits don’t apply. Or, if you let someone borrow your car when you know it has some kind of defect (like brakes that don’t work properly, for example), your liability is unlimited. That means those limits we just discussed go right out the window. If someone sues you and wins, the sky is the limit for how much you’ll owe in damages!
And guess what? Your insurance company DOESN’T have to foot these bills. Thanks to permissive use, they can pay only a small portion of what you owe, or they can get away with paying nothing at all.
So, who can drive your car and still be covered under your insurance policy?
An occasional, unexpected driver.
For example, if you loan your car to a neighbor one time, odds are your insurance coverage will kick in if he gets into an accident. But if you let your neighbor borrow your car every week to go to the grocery store, he’ll need to be listed on your insurance policy if you want to have coverage.
Permissive use also covers people like mechanics who drive your car around the block, or someone who wants to test drive your car before they buy it. It can even cover relatives who don’t live with you. However, if you let someone who lives with you borrow your car, they won’t be considered a permissive use driver — no matter how infrequently they actually get behind the wheel.
One final point — check to see if your insurance policy comes with any permissive use exclusions. For example, if you let a friend borrow your car one time, he’s an occasional, unexpected driver. That should be fine, right? Not necessarily! If he does something that falls under one of your policy’s permissive use exclusions — like, for example, driving drunk — you won’t have any insurance coverage.
So, read your policy carefully and be careful when you loan out your car. One wrong decision could land you in a heap of trouble!
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