A lot of people are making extra money through car hire, or transportation company network apps such as Uber, Lyft, and Sidecar. These services use an app to connect people who need a lift with car owners that need some extra cash. Unfortunately, many of the drivers making extra cash from such apps might be driving without insurance.
These apps can help you make some extra cash, but they could also get you into big trouble with your insurance company. Worse, drivers that take advantage of such services could find themselves facing lawsuits and medical bills or having to pay for car repairs themselves.
The reason for this is the kind of insurance that such companies offer. Most transportation network companies give drivers up to $1 million in liability insurance, but they don’t provide collision insurance. Collision is the part of your policy that covers the cost of damage to your vehicle.
Instead, the companies assume that your insurer will cover such damage. The problem is that many car insurance policies do not cover your vehicle if you use it in a commercial activity. A person providing Lyft rides who gets into an accident might end having to pay for damages out of his own pocket, even though he’s paying for insurance.
If that wasn’t bad enough, the insurance coverage provided by Uber or Lyft only pays for medical costs for passengers or persons injured in an accident, such as another driver. The driver of the Lyft car might end up having to pay his or her own medical costs if he or she is injured.
Another nightmare that could occur is that a Lyft or Uber driver could end up without a car, but still has to pay a car loan. That could happen if the car used for Lyft gets totaled in an accident. The driver’s regular insurance might not replace it, but he would still owe the finance company the balance of the loan.
To make matters worse, Lyft’s liability insurance will cover damage to other vehicles you hit or other drivers. It will presumably cover uninsured motorists as well.
Insurance for Transportation Network Company Drivers
If you’re thinking of signing up as a driver for a transportation network app, there are a few things you need to do.
- Read your insurance policy and see if it covers commercial activities or not. Some policies specifically exclude them, while others don’t. Other policies might cover some commercial activities, but not others. The policy might exempt car hire or cab service.
- If the policy doesn’t mention commercial activities, then chances are it does not cover them. Never assume an insurance policy covers something; find out for yourself.
- If the policy doesn’t cover commercial activities or doesn’t mention them, then contact your insurance company or agent and ask. Many companies have commercial products available for such activities.
- Buy a commercial auto insurance policy if you don’t see coverage offered. You can order such policies online from major insurers, just like any other policy. A commercial auto insurance policy will pay to repair or replace your vehicle if it is damaged or destroyed. Even though they cost more, it’s better to be safe than sorry. Something else to remember is that you can write off the cost of commercial auto insurance on your income tax return.
- Go to an insurance broker rather than an agent. Insurance brokers offer a wide a variety of products including many for businesses. Try and locate an insurance broker who specializes in business coverage. Such professionals are often very knowledgeable about the insurance requirements mandated by law. A broker might have products tailored for transportation network company drivers or know how to find them.
Those who are thinking about signing up with something like Uber should be careful. The New York Times reported that Uber is being sued by drivers who complained that the service was stealing its tips. The service is also facing a wrongful death lawsuit over an accident that killed a six-year-old girl.
There’s also a strong possibility that an Uber driver might be held personally liable for an accident. That means Uber’s liability wouldn’t cover the driver, and a standard auto insurance policy might not cover the driver because he or she was engaged in a commercial activity. Part of the problem is that such services are so new that courts haven’t ruled on who is liable or not.
Persons who live in states that offer no-fault insurance could be in more trouble. No-fault auto insurance only covers private individuals; it may not cover a person driving for a commercial service. That means a person could be at fault for damage done in an accident, even though he or she lives in a no-fault state.
The bottom line is that you need to be careful if you use your own car for any commercial activity, whether it is giving people rides or delivering pizzas. Your attempt to earn a few extra dollars could put everything you own at risk from a lawsuit.