Texas Car Borrowing Laws and the Risks of Loaning Your Car to a Friend

Who is Responsible if You Lend Someone Your Car and They Get in an Accident?

If you loan your car to someone and they are not at fault for the accident, then the other driver is liable for your damages and his insurance should pay. If you loan your car out and the person you loan it to is at fault, then he is liable for the damage to your car and the other person’s damages. Both your insurance policy and his insurance policy may be liable depending upon the policy language. If neither of you has insurance, your friend will be liable to the other party and you may be too if you negligently entrusted the vehicle to an unlicensed or unsafe driver. Your friend may also be personally liable to you for all or part of the damage to your vehicle. To understand this, a basic understanding of Texas insurance is beneficial.

insurance coverage

Having insurance does not mean you are covered for everything that can happen.

How Auto Insurance Works in Texas

In Texas, you buy liability insurance to protect you from the financial obligation to pay for damages to others that are your fault up to the insurance policy limit. You can also buy uninsured and underinsured motorist coverage to protect you in case the other driver is at fault and has no insurance.  It will pay up to your policy limit for your damages. Comprehensive and Collision Coverage repairs your car only, regardless of whether or not anyone is at fault or has other coverage.

What are Insurance Policy Limits?

Insurance policy limits are the amount of insurance coverage to cover the risk of loss when you are in an automobile accident. Auto insurance in Texas is simply a contract whereby a company assumes part of your responsibility and risk when you get in an automobile accident. The amount of insurance coverage you purchase determines how much of your responsibility and risk they assume.

Make Sure You Have Both Liability Coverage and Comprehensive and Collision Coverage Before Loaning Out Your Car

When you loan your car to another person and they cause an accident, liability insurance on your vehicle will generally protect both you and the driver (up to your limits) if someone else sues for damages caused by the driver of your car. However, your liability insurance will not repair your car. If the driver of your car has no insurance, he may be legally liable, but he will likely be judgment proof.  To put it simply, you cannot squeeze blood from a turnip. If your friend is liable but has no money and all you have is liability insurance, no one is fixing your car. Comprehensive and Collision will pay for the repairs to your vehicle so long as your friend was not an excluded driver.

Beware the Driver Exclusions

Some standard auto policies can be very restrictive on who may drive the car. They may have a clause that prohibits anyone in your own household from driving the car. If this is the case, your insurance contract is void if you let those people drive. There also may be an unlicensed driver exclusion or a specifically named driver exclusion. Named driver exclusions specifically exclude individuals by name and are common when other high-risk drivers live in your home. Always be aware of any exclusions and never loan your car to an excluded driver.

Know Your Borrower

Before loaning your car to someone, it is wise to ask to see their Texas driver’s license.  If they cannot produce one, do not entrust them with your car or coverage may be voided. It is also good to know whether they have insurance coverage on a vehicle themselves and what type. It would be wise to get a copy of their declarations policy for your records.

Long Term Borrowers

If you are planning to allow someone to use your car for an indefinite or long time, you would be wise to add them to your policy or have them get a non-owner policy.  Your insurance agent can help you decide which is best for you. Some auto policies may exclude drivers to whom you loan the car out for extended use.

Conclusion

Loaning out your vehicle can have so very negative consequences if you fail to make sure you have the proper insurance coverage. If you are planning to loan out your car, it would be wise to make sure you have Liability Coverage and Comprehensive and Collision Coverage on your vehicle with significant limits to protect you. You also need to make sure that the person you are loaning the car to is not excluded.  If you are going to loan it out for an extended time, make sure the borrower has his own insurance and that your policy does not exclude coverage.

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