One of the most common questions I get as an auto insurance agent is “who is insured to drive my car?”
Sometimes the answer to this question can be more complicated than most people think. If you never loan your car to others and you never will, none of the restrictions I discuss here will matter to you and you can stop reading now.
Short answer:
The people listed on your policy enjoy all the benefits of your policy coverage without restrictions. For those who borrow your car that is not on the list, they are generally covered as long as you have given them permission to use your car; This is called “Permissive Use” and all policies have some form of permissive use or interpretation of it. Excluded drivers are never covered, and neither are unnamed drivers who “use the vehicle without a reasonable belief that the person has the right to do so” (sometimes referred to as “theft”).
Depending on the company you are insured with, interpretations of permissive use can vary drastically and some insurance companies are very strict in your application of the rules.
By reducing or restricting coverages across different permissive use applications, carriers can reduce their risk (and claims costs) thereby reducing the cost of their policies to make them more affordable for their policyholders.
Three examples of “permissive use” restrictions used by carriers include: “Drop-down limits”; “Double deductible”; and “No physical damage coverage.”
Drop-down limits:
Often times, there are drastic reductions in the coverage amounts of insurance policies, even when a permissive user has an accident. One of those reductions is called “drop-down limits.” “Drop-down limits” means that if a person has an accident while borrowing their car, the liability limits are lowered to the state minimums. For example, the state of California requires minimum limits of just $ 15,000 per person for bodily injury (BI) / $ 30,000 per incident maximum for bodily injury (BI) / $ 5,000 for property damage (PD).
Example: Driver “A” has an insurance policy with full coverage with permissive use and his liability coverages are $ 100,000 per person (for BI) / $ 300,000 per occurrence (for maximum BI) / $ 50,000 per occurrence (for PD ). Your policy has a “drop down limit” clause. Let’s say you lend your car to a friend (driver “B”) and that friend has a serious accident in which the other party’s bodily injuries amount to $ 65,000 and he adds the other car that is worth $ 28,000. In this scenario, the “drop-down limit” is in effect and the most Driver A’s policy will pay is $ 15,000 for other people’s injuries and $ 5,000 for their vehicle, which is clearly not enough. In this case, Driver A is legally responsible for the balance of the damages because he is the owner of the vehicle; $ 50,000 for injuries and $ 23,000 for the vehicle. If Driver B has coverage, his coverage would be secondary and his limits would apply until they are exhausted as well. Otherwise, the other party will most likely sue Driver “A”.
Double deductible:
One coverage that is available with your auto insurance is called collision insurance. Collision insurance protects your vehicle from damage that is the result of a collision with another object. That is, another vehicle, a building, etc. Collision coverage has a deductible which is the “out of pocket” amount that you must pay first before the insurance company steps in to repair or replace your car. Generally, deductibles can range from $ 100 to $ 2,500, but most of the time they are $ 500 or $ 1,000.
The way the “double deductible” restriction works is that if an unnamed driver has an accident while driving the car with their permission, the collision deductible is doubled. So your $ 500 deductible is now $ 1,000, or your $ 1,000 is now $ 2,000. Hopefully your friend who borrowed your car will be willing to contribute and pay the additional deductible amount.
Sometimes the “double deductible” restriction is based on the age of the driver borrowing your car. For example, the collision deductible is only doubled if the driver is under 25 years of age.
No physical damage coverage:
This restriction works the same as the “double deductible” described above. However, this restriction is much more punitive.
Simply put, if an unidentified driver borrows your car and has an accident, the insurance company will pay for third party damages (liability), but the damages to your vehicle will not be eligible for coverage.
All of these “permissive use” restrictions are described in detail in your policy initially and also in your renewals. These restrictions must also be disclosed by your agent when you buy your policy, so you want a professional insurance agent / broker who really understands these complexities and can effectively explain these restrictions to you when you apply for coverage.
Permissive use restrictions are also very common and are employed by some large and reputable national insurance companies, so be sure to examine your policy carefully.
Auto insurance policies are not all standardized. They are different from provider to provider, and there are a multitude of coverage benefits, restrictions, and exclusions that are unique to each company. Be sure to check with your agent to see how your particular policy works.
Food for thought: The next time you’re considering buying a policy “online” without a human helping you, or from an “800 #” with an “order taker,” consider how details like these might not be adequately described. or get lost in some way. in translation – it pays to have an agent who can really take care of you.
