The insurance implications of lending your car to your friends

We’ve all done it: tossed the car keys to a friend or family member and asked them to drive without giving it a second thought. But maybe you should think twice, especially about the insurance implications.

One third of people who borrow cars from friends or family members are either not covered by comprehensive car insurance or not sure whether they are covered, according to a recent survey conducted by Uber Carshare.

Let’s take a closer look at what is and isn’t covered when someone else is driving your car.

Does your insurance cover injuries caused by someone else driving your car?

That all depends on what insurance you’ve got. While compulsory third party (CTP) insurance varies from state to state, it is a legal requirement for anyone registering their car to take out CTP cover.

CTP insurance provides the driver of the vehicle with legal liability cover in the event that someone is injured or killed in an accident. The problem with this type of cover is that it doesn’t provide you with cover for any damage to property or another vehicle, or for theft.

That’s where third party property damage, third party fire and theft, and comprehensive car insurance policies come in.

However, unlike CTP insurance, which covers anyone else driving your vehicle, these other options may not provide cover for everyone.

Does your insurance cover damage caused by someone else driving your car?

This is where things can get a little tricky as every policy is different. While CTP insurance provides protection regardless of who is driving your car, in most cases other types of insurance will only cover you and any drivers specifically nominated on your car insurance policy. However, all insurers are different so you should check the fineprint of your policy to be sure.

Many insurers have blanket exclusions for other people driving your vehicle, which look something like this:

“[Insurer X] will not provide you with cover for any damage, loss or liability arising out of the use or operation of the vehicle:

• By any household member not listed on your Insurance Certificate
• By anyone specified by you or [Insurer X] on your Insurance Certificate to be excluded from cover
• By anyone excluded by age
• By someone who is driving your vehicle without your consent, unless reported to the relevant authorities”

Can an unlisted driver ever receive cover?

The good news is that there are policies out there will provide cover for a friend or family member, even if they’re not nominated on your policy.

Some insurers may offer you cover for an unlisted driver, but you’ll have to pay an unlisted driver excess. Below is an example of the conditions of an unlisted driver excess from the Youi PDS:

“If we accept your claim for an insured event where the car was driven with your permission by any person who is not shown on your policy schedule as a listed or regular driver, an additional unlisted driver excess becomes payable. The amount of this excess will be shown on your policy schedule. This excess amount will be added to any other excess amount that may apply to the claim and may still apply even though the basic excess has been waived.”

Better still, there are insurers such as NRMA that cover “anyone who has your permission to drive your vehicle”.

This is why it’s so important to read the PDS before purchasing car insurance – every policy is different and if there’s any chance you’ll be loaning your car to someone else you need to know they’ll be covered.

How can you avoid not being covered?

The easiest way to avoid this tricky situation is to not let anyone else drive your car. But that’s not always possible. If you live with someone who you shares your car (or who might ever need to drive it), it might be worth listing them on your policy. Sure, it might cost a little more to nominate another driver but it could end up saving you a lot in the long run.

You could also consider listing your car on a peer-to-peer car-sharing platform like Uber Carshare. These schemes allow you to rent your car out to your neighbours safely and easily when you aren't using it yourself, and the money you'll earn will go a long way towards offsetting the costs of car ownership.

All Uber Carshare bookings include damage cover for borrowers, and you keep your own insurance to cover your car at other times.

Richard Laycock is an insurance expert at finder.com.au.

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