Auto Insurance

Planning on Driving for Uber or Lyft? You'll Need Insurance For That

If you are or plan on becoming a rideshare driver, your auto insurance is an important consideration you may have forgotten about. Between your own car insurance and the insurance provided by rideshare services, there is still a gap in coverage that can end up costing drivers thousands of dollars in the event of an accident. In this post we go into depth on what you can do as a driver to protect yourself

Driving for Uber, Lyft or any other ride sharing service has become a popular source of main or secondary income. There are over 150,000 drivers for just Uber, and that number is poised to grow as these companies grow. What many drivers overlook however is their car insurance. Companies grow faster than policies can keep up, and although rideshare has been around for a few years, car insurance policies still lack the coverage needed to protect its drivers. This leads to a lot of confusion, and possible financial trouble.

Your Regular Policy is Not Enough

If you own a car, you most likely already have a policy. Unfortunately, it will not be enough to completely cover you while driving for a rideshare service. When you first started looking for auto insurance, you signed up for a personal policy. Which typically means not for business purposes, which is what a taxi service is considered. In the eyes of your insurer, if you crash your car doing something you weren’t insured for, they are not obligated to pay out for the claim potentially leaving you with a heavy financial burden.

How to Distinguish Between Pleasure Driving and Rideshare Driving

There are essentially three stages when it comes to rideshare driving. You enter stage one when you turn the app on, indicating you are looking for a passenger. The second stage is when you are matched with a passenger on the app, and you need to go pick them up. The last and third is when you finally have the passenger in your car. Once you turn the app off, your regular policy covers you once again. The stages are important to know because Uber and Lyft will only fully cover you in the event of an accident during stages 2 and 3. Get into an accident in stage 1 though, and you can find yourself in an insurance quagmire. Uber and Lyft provide a small bit of coverage, but it’s not much, and it won’t even cover any damage to your car or yourself. If you file a claim with your insurance company, not only may they deny the claim, they could also completely drop you from their service. For a long time, drivers have put themselves at financial and health risk during this “Gap” between stages 1 and 2.

How Do You Cover That Gap?

Luckily, it is 2016, and several popular insurance companies have finally updated their products with rideshare coverage to protect drivers. Large insurers such as GEICO offer “hybrid” coverage, which is a cross between a personal and commercial policy that is not as expensive as a full commercial policy but more expensive than a regular personal policy. Progressive and Erie have simply added rideshare to their commercial policies, while most other insurers such as Farmers, Allstate and State Farm, have created an endorsement you can add to your personal policy that will cover the first stage of Uber driving. We call this “Gap coverage” where during that first stage, if you get into an accident, the new endorsement will insure you.

It's Still a Bit Complicated

Insurance is regulated on the state level, so consequently, not every state has coverage available yet. GEICO provides its “hybrid coverage” in only sixteen states, Farmers its "Gap Coverage" in 16 states, and Allstate in only 4 states as of April 2016. States like Colorado and Nebraska have a wealth of options while New York, Michigan, and Florida have no options at all.

What You Can Do

If you are fortunate enough to be in one of the states with “Gap Coverage”, then that would be your best option. The endorsement is relatively cheap, only costing an extra $15-$20 with Allstate, which is less than an Uber driver can make in a single night. The only issue is that you will already need to have a policy with that company to get the endorsement. If your state has GEICO hybrid, it will be certainly costlier than a normal policy, but if the cost of the plan is cheaper than your Allstate or State Farm coverage with the endorsement, that would clearly be the more cost effective solution.

If you are from Michigan on the other hand, and there's no coverage at all, we would recommend taking it one step at a time to best assess your options. First weigh the cost of a commercial auto policy against how much you think you can make as a driver. One commercial quote we obtained for a driver in Michigan insured by Allstate ended up costing $1,094 per month. Essentially, unless you are working full time for Uber or Lyft, you won't come out ahead with a $13,128 per year policy. The next best thing would be to call your insurance company and ask what they would do in the event of an accident. Some companies, in certain locations, may be more favorable toward taking claims from rideshare drivers. If both of these options are unfavorable, it may be best to wait until your state has coverage. Each major insurance company continues to add states to their policies and it should not be much longer until your state is also included. Taking the risk can be very costly, so think twice before “ubering” without insurance.

Craig Casazza

Craig is a former research analyst at ValuePenguin covering property and casualty insurance, including auto, homeowners, renters and motorcycle insurance.