Here's how rideshare insurance works
More and more Americans are using ridesharing services like Uber and Lyft—and that means more accidents involving ridesharing cars. But who covers those vehicles when they get in a collision? More importantly, if you drive for a ridesharing company, how do you know that you’re adequately covered on the job and that you won’t get stuck with a huge repair bill if you get in an accident?
The answer is a bit complicated. But we’re going to break it down for you. (And if you just want to know what to buy. tap here to jump to the solution.)
Let’s talk about how insurance works
It’s important to know that, broadly speaking, there are two main categories of car insurance: personal car insurance and commercial vehicle insurance.
Personal auto insurance is exactly what it sounds like: insurance purchased by private individuals to cover the vehicles they use in their everyday lives. It’s the coverage most people are familiar with, and it generally is the correct kind of car insurance to purchase for a vehicle—as long as that vehicle isn’t owned by a business or used to make money.
And if the vehicle is used to make money? That’s where the other kind of insurance, commercial vehicle coverage, comes into play. It’s the insurance purchased by taxi and delivery companies to cover the vehicles they use to bring in the majority of their income. Commercial coverage is intended to insure vehicles which travel a lot of miles and, therefore, it’s quite a bit more expensive than personal coverage.
So, which kind of car insurance applies to rideshare vehicles? Well, you can probably see the challenge: neither personal auto insurance nor commercial vehicle coverage quite works for a ridesharing coverage situation.
The problem is that a rideshare driver actually switches back and forth between being a personal driver and a commercial driver, and sometimes they switch categories many times in the course of a single day. And no single kind of auto insurance applies to both situations.
So, if you drive for a ridesharing company, how does all this switching back and forth affect your coverage?
Driving periods and rideshare coverage
If you drive for a rideshare company, you probably know that the big players in the industry offer their own liability and collision coverage for when you’re on the clock. Those coverages are a great start, but they don’t quite cover you all the way.
To explain why, let’s look at the different stages of driving for a rideshare company and how your insurance coverage shifts throughout your driving (the insurance industry commonly refers to these stages as periods.)
You’re driving for personal reasons. You’re not accepting passengers and the rideshare app is turned off. In this case, you’re a private driver driving a personal vehicle. Your personal auto policy applies! No big deal.
Time to start earning! You drive downtown, turn on your app to declare your availability, and...
Boom! You’re a commercial driver now. And here’s the important thing: you are no longer covered by personal auto insurance. If you get into an accident during Period 1—even if it’s only three seconds after you turn on your app—your personal auto insurance won’t cover the accident.
You might think that you’re covered by your ridesharing company’s insurance policy during this time—and you’re right. Kind of. But here’s the thing: Uber and Lyft only provide basic liability insurance for Period 1. This means if you get into an accident while waiting for a ride request, their insurance will only cover the damage you cause to other people and their property. It will not pay for the cost of your medical expenses or for repairing or replacing your car.
If you can’t afford to replace your car with your own money, this is a big problem (though one with a solution).
Ride request logged! As soon as you accept the ride, you are now covered by your ridesharing company’s insurance—both collision and liability (as long as you have those coverages on your personal policy). No worries.
You’re safely driving your passengers to their destination. And, as you might expect, your ridesharing company’s insurance is still in full force.
As soon as you drop your passengers off and end the ride, though, you’ll be back to…
Period 1, again
Just like before, you’re only covered by your ridesharing company’s liability insurance. Your personal auto insurance policy doesn’t apply.
You can see what we mean. The switch in coverage from personal auto insurance to commercial vehicle insurance isn’t seamless, and it leaves you exposed to significant risk.
Okay, so how do you cover the cap in collision coverage for Period 1?
In most states, the solution is pretty simple: you purchase a Ridesharing Endorsement from your auto insurer. This endorsement will extend your pesonal auto policy coverages through through Period 1, so you won’t be left hanging if you get into an accident while waiting for a ride request. Also, if your personal liability insurance has higher limits than the basic coverage Uber provides, a Ridesharing Endorsement will extend that coverage through period 1. It’s a pretty easy and relatively inexpensive way to get peace of mind.
What if a Ridesharing Endorsement isn’t available in your area? Ask your insurer about options and know that some places require drivers to get a commercial policy for their ridesharing vehicle. Yes, it will be more expensive, but it won’t be nearly as expensive as purchasing a new car.