In most states, your car insurance does not automatically cover every traffic accident that your vehicle is involved in. Typically, the driver must be either specifically listed by name on the automobile insurance policy, listed by category on the policy (i.e., household member), or otherwise fall under the category of a permissive user. Read on to learn more about who a "permissive user" might be, and the basics of what's sometimes known as "permissive use" coverage.
Being listed by name in a car insurance policy is clear enough, but some policies also cover "household members." The question is, what is a household member? To answer that, you will have to look at the "definitions" section of your policy.
The policy will usually define a "household member" as someone living in your house who is related to you by blood, marriage, or adoption. So, if you have a roommate or housemate who you want covered by your automobile insurance, you should check with your insurance agent to see if that person will be covered as a household member. If that person will not be considered a household member, then you should specifically list that person as a covered driver.
Permissive use in an automobile insurance policy means that you overtly or tacitly allow another person -- who is not specifically covered by name or as a household member -- to operate your car.
For example, if you allow a friend to borrow your car, that is permissive use. You have given your friend your permission to use your car. However, you must be aware that not all automobile insurance policies cover permissive use. Also, some of those policies that do cover permissive use might provide only limited coverage for permissive users, or require increased deductibles if a permissive use car insurance claim is made.
So, before you lend your car to even your best friend, you should take a close look at your insurance policy to see exactly what coverage it provides for permissive use situations. If your policy provides limited or no coverage for permissive use of your car, then you might want to think twice before letting anyone borrow your car.
It is possible that, if your friend borrows your car and gets into an accident, your friend’s own car insurance policy might cover any damages, but that is no guarantee either. Your friend’s policy may or may not cover accidents in cars that he/she borrows, or the friend’s policy might provide far more limited coverage than your policy. The best rule is to know what the facts are before lending out your car and read your policy first.
Even if your insurance policy covers permissive users, it may not cover business uses of your car -- either your own or a permissive user’s -- unless you have a specific endorsement for business use on your policy.
You might think this point is no big deal because you don’t drive your car for business. But what if your friend is self-employed and borrows your car to make a business delivery? If your policy does not specifically cover business uses by permissive users, you will have no coverage if your friend gets into an accident while making a delivery in your car. This is all the more reason to read your policy carefully.
A second exception to permissive use coverage applies to unlicensed or inexperienced drivers. If you should manage to lend your car to an unlicensed driver (hopefully because you didn’t know that the person had no driver's license) and that person gets into an accident, you should expect that your insurance company will try to disclaim coverage.
If you lend your car to a driver with substantially less driving experience than you or the other members of your household, it is possible that your insurance company will also try to deny coverage. You might think that is unjust, but insurance companies base this argument on the fact that they determine your insurance premium based on the driving records of the persons named on the policy. If they knew that a person with much less driving experience than you would be driving your car, they might have increased your premium.
The message here? Always be careful about who you lend your car to. Don’t be bashful about saying that you just can’t lend out your car for insurance reasons.
If you simply cannot understand the fine print of your automobile insurance policy (or any insurance policy, for that matter), get help. Bring your policy to your insurance agent with a list of questions and have them sit down with you and review the details of the policy, especially when it comes to covered drivers and covered vehicles. Insurance policies are notoriously unclear and difficult to understand. Translating the fine print into plain English is a big part of your insurance agent's job.