How Car Sharing Affects Your Auto Insurance

How Car Sharing Affects Your Auto Insurance

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If you don't use your car much, a peer-to-peer (P2P) agreement could be a great way to earn some extra cash. With this type of arrangement, you allow people to rent your vehicle for a prespecified time frame and fee.

But before signing up, you need to do your due diligence — especially when it comes to car insurance. Without proper coverage in place, you could be on the hook for someone else's medical bills, repair costs and property damage fees.

How car sharing works

P2P car sharing is facilitated by third-party services — such as Turo, Getaround and JustShareIt — that connect car owners with prospective renters. The companies perform background checks to ensure that both parties have clean records and auto insurance in place and that the rental car is up to snuff. Compared to conventional options such as Hertz, Avis and even Zipcar, car-sharing services can be enticing alternatives.

Car sharing isn't synonymous with ride-sharing, where you hire a driver to take you from point A to point B.

Does auto insurance cover car sharing?

Although terms vary with every company, most car sharing services automatically provide free commercial auto insurance for owners, renters and third parties. State-specific limits add another layer of complexity to understanding how coverage can vary. Here's what car sharing services typically include:

Liability up to $1 million combined single limit per occurrence: You (the owner) and the renter both have primary liability coverage up to $1 million. Depending on the company, the coverage might kick in during the "rental period" only — when a P2P user has your car — or during the "delivery period," when you're driving your car to a renter.

Uninsured/underinsured motorist coverage for the renter, usually not exceeding the statutory minimum limit allowable by state law (which can mean zero coverage, depending on the state).

Personal injury protection for the renter: Typically not in excess of the statutory lowest limit allowable by state law.

Comprehensive and collision up to certain limits: These coverages protect owners against theft, fire, vandalism and property damage to their auto, up to the actual cash value of the vehicle. However, this protection can exclude any damage that occurs while the car is being delivered to the renter, everyday "wear and tear," pre-existing damage and personal belongings left in the vehicle.

Renters typically can choose to decline coverage in the event the car is damaged, lost or stolen — relying solely on their personal policy. Or the renter can purchase a supplemental insurance package from the car-sharing service, which comes with a deductible.

Gap between the driver's personal policy and commercial policy

Personal auto policies usually don't cover claims for accidents that occur while an owner's car is being used for commercial purposes. That's why car-sharing services typically provide additional liability coverage — it pays for any claims that personal policies won't cover.

While the car service policy may be adequate for some owners, a separate commercial auto insurance policy may better protect you. Here's why:

  • The coverage may run out. If the expenses related to an accident claim exceed the cap set by your personal policy limits or the car-sharing service's limits, you could be on the hook for any balance that remains.
  • Your insurer may exclude coverage. In some states, insurance companies can't cancel a personal auto insurance policy solely because the owner participates in a car-sharing program. However, the personal policy can exclude any and all coverage (including comprehensive and collision) for accidents that occur while the car is being rented out. And insurers in other states may exclude, cancel or not renew personal auto policy coverage, or could significantly raise premiums, when you rent your vehicle to another driver via a car sharing service.

If you're thinking about buying a commercial policy, look for one with liability coverage, personal injury protection, comprehensive and collision coverage, and uninsured motorist insurance. These policies may cost hundreds of dollars each year, but it could help you feel safer when renting your car to a stranger.

Before signing up for car sharing

Before entering a car-sharing agreement, read the policy carefully and check whether fees are involved. "Go to the website of the company and look closely at the type of insurance protection offered," says Jeanne Salvatore, senior vice president/COO with the Insurance Information Institute. Ask questions about anything you don't understand.

Also contact your personal auto insurance company and ask whether your policy covers car sharing. "Let them know ahead of time that you plan on participating in car sharing, and make sure that this won't be a problem," says Salvatore. Ask your insurance agent about recommended minimum coverage limits and supplemental coverage — but make sure you're not overpaying or duplicating coverage.

Prospective renters should have car insurance that includes $100,000 for bodily injury per person, $300,000 for bodily injury per accident and $100,000 for property damage. Consider increasing your personal uninsured/underinsured motorist coverage limits, too. If you don't own a car, you may purchase nonowner liability insurance or ask your credit card issuer if they provide primary or secondary auto insurance coverage. You'll probably need to pay for the rental with the credit card that provides coverage.

Prospective owners shouldn't rely solely on liability coverage provided by a personal auto insurance policy. Instead, consider purchasing additional comprehensive/collision and commercial insurance coverage for better protection. Be sure the car-sharing service has a system in place for thoroughly screening your prospective renters for accidents and moving violations.

Mark is a Senior Research Analyst for ValuePenguin focusing on the insurance industry, primarily auto insurance. He previously worked in financial risk management at State Street Corporation.

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