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Is your rideshare driver covered?

Ridesharing, ride-hailing, ride-booking, call it what you like, but the companies behind the “drive-your-own-car-for-money” phenomenon are pouring new drivers onto the streets. Before you get into one of these cars, it’s important to understand how drivers are vetted, the vehicle’s safety requirements, and when these drivers are – or aren’t – covered by auto insurance.

Extra income draws many to become drivers

Potential drivers are lured by promises of high hourly wages and signing bonuses that makes driving strangers around in their car seem like a tempting career choice. In Denver, Uber is offering up to $5,280 in potential bonus money.

In Portland, Oregon, city officials cleared ridesharing companies, also known as Transportation Network Companies (TNCs), to start operating in April 2015, and by August, Uber and Lyft had 2,500 drivers on the streets. In the San Francisco Bay area, home of Uber, the company has said it has exceeded 20,000 drivers.

While rideshare driving can be inexpensive for passengers and a great way to earn extra money for drivers, there are risks that ridesharing companies often fail to stress, such as the auto insurance gap, which can present a danger to the driver, passengers or pedestrians.

An accident at the wrong time can leave a driver with major expenses and little or no help from the employing company. In the world of ridesharing, when it comes to car insurance, drivers should be well aware of what they are putting on the line every time they get behind the wheel and a passenger like you gets in their backseat.

The rideshare signup process is pretty simple

These companies make the sign-up process fairly easy, which allows them to get drivers onto the road quickly.

Anyone who is at least 21 years old and passes a background check can often start driving. New drivers must provide some personal information (a social security number for the background check) and photos of their car, face, driver's license, vehicle registration, and a current insurance card.

A driver’s vehicle must pass an inspection, and in some markets (Denver is one) drivers need to pass a physical. Cars must have four doors and meet age requirements that vary by market; in Seattle (for Lyft), car models need to be 2005 or newer. Also, all rideshare drivers must have working smartphones. Generally, a driver’s license must be issued by the state where ridesharing experience will take place, and the auto insurance card must list the driver as the insured.

Auto insurance doesn't get much play

The insurance requirement mentioned on Lyft's site is: "You must be a covered party on your car's in-state insurance, and have in-state license plates."

According to Jonathan Smith (name changed as his insurer doesn't know he is a rideshare driver), a Lyft driver in Seattle, "No gaps in insurance were ever mentioned in the sign-up process, in fact, very little information is given during the process."

It's not just Seattle drivers who may be left in the dark, Colby Hanik, who used to drive in Los Angeles, recalls his sign-up, "No one discussed insurance when I signed up. I opened the app, submitted my info, my car's info, and then went for an inspection. I provided proof of insurance and was approved with the insurance I was carrying, which made me assume I was also protected by their coverage."

This later turned into an expensive lesson.

Insurance requirements vary by state. In most cases, it is the rideshare companies that must meet state standards, not their drivers. In California, TNCs have to provide primary coverage during Period 1, which helps but still leaves a gap.

Not sure what terms like primary coverage and “Period 1” mean? You’re not alone. Rideshare companies divide the driver’s time in the car into periods.

Rideshare timeline and coverages
Rideshare timeline Personal auto insurance Personal rideshare endorsement Rideshare company (TNC) insurance
Offline: App is off, personal driving

Yes

Personal auto insurance in effect

Yes

Some insurers have a rideshare endorsement for this period. Otherwise, coverage will continue under personal policy portion.

No
Period 1: Driver is online and available for hire No

Yes

This is the riskiest period for drivers, so personal rideshare policies can help fill the gap.

Yes

Contingent liability coverage of 50/100/25

Period 2: Driver accepts bid, en route to pick-up location No

Yes

Rideshare company insurance is primary, but some personal insurers have endorsements for this period.

Yes

$1 million liability, $1 million uninsured/underinsured motorist bodily injury, contingent collision and comprehensive up to actual cash value (Deductibles from $1,000 - $2,500)

Period 3: Passenger in vehicle No

Yes

Rideshare company insurance is primary, but some personal insurers have endorsements for this period.

Yes

$1 million liability, $1 million uninsured/underinsured motorist bodily injury, contingent collision and comprehensive up to actual cash value (Deductibles from $1,000 - $2,500)

Return to Period 1: Passenger exits No

Yes

Reverts to Period 1 coverage 

Yes

Contingent liability coverage of 50/100/25

Rideshare Period 1 auto insurance gap

While big rideshare companies may boast about their $1 million auto insurance policies, they rarely mention that drivers can be left on the hook for vehicle repairs and hospital bills if an accident occurs at the wrong time.

In the ridesharing world, Period 1 is when the ride-hailing app is open but a rider hasn't been assigned. In most states, Period 1 coverage by the company is contingent and coverage levels are low. Contingent coverage only steps in if the driver’s personal insurance policy denies a claim, so drivers must notify their personal insurer of any accident, which could result in a non-commercial policy being cancelled.

During Period 1, TNCs offer 50/100/25 in liability coverage, which translates into $50,000 per person, $100,000 per incident, and $25,000 in property damage. These levels are significantly lower than the 100/300/50 limits that most experts recommend.

Pedestrians should also be concerned about ride-hailing drivers. If a driver strikes a pedestrian while in Period 1, when the driver might be distracted by watching his or her phone for a rider to pop up, the driver’s personal policy would be in effect. If the driver’s personal policy wasn’t enough to cover the costs – or denies the claim outright due to the driver carrying the wrong type of auto policy to cover driving passengers around for pay -- TNC’s contingent coverage would kick in, but the limits are low.  

Periods 2 and 3 auto insurance  

During Periods 2 and 3, when drivers are en route to pick up a passenger, or a passenger is in the vehicle, drivers are fully protected by their company’s $1 million liability policy. However, in the event of an accident where your driver isn't at fault, you would then be making a third-party claim against the negligent driver, who most likely won't have those high limits. And while it’s not likely to happen, if your driver does anything that voids out the TNC's insurance, like intentionally doing damage, your injury may not be covered.

Injury coverage explained

As a rideshare passenger, you probably worry more about how quickly you’ll reach your destination than about reaching it safely. But what happens if you’re in an auto accident? Whose insurance covers you if you are injured as a passenger in a rideshare vehicle? If you’re involved in an incident as a passenger, it’s important to know what insurance information to obtain if you need to make a claim.

Accident types

Who is at fault

Which insurance pays (and in what order) for your injuries

Rideshare vehicle hit by another vehicle

Other driver

1. Other driver's auto insurance liability coverage

2. Rideshare company's uninsured/ underinsured policy ($1 million limit if other driver is uninsured or underinsured)

3. Rideshare company's personal injury protection (PIP) coverage (only in states required by law - limit varies by state requirements but is on par with levels required of limos or taxis in that area)

Rideshare vehicle hits another vehicle or stationary object

My driver

1. Rideshare liability policy with $1 million limit per incident (for all injuries and damages resulting from the accident)

2. Rideshare company's personal injury protection (PIP) coverage (only in states required by law - limit varies by state requirements but is on par with levels required of limos or taxis in that area)

Just like an accident in your own car, collecting information is key. Using your smartphone, take photos of all drivers and vehicles involved, license plate numbers, how the cars sat after the accident, and anything else that seems significant (such as street signs of where it happened). 

Obtain insurance information for both your rideshare driver and the other driver – regardless of who you believe it at fault. If the accident is deemed the fault of the other driver and that driver is uninsured or underinsured, you may end up making a claim with rideshare company’s insurance provider.

The National Association of Insurance Commissioners’ WreckCheck app on your phone is an excellent guide to asking the right questions and obtaining the necessary information after an accident. It isn’t built specifically for rideshare accidents, but it has a checklist and advice that can help if you’re in any type of auto accident.

Vehicle damage repairs are up to the driver

Unfortunately, regardless of the Period, repairs to vehicles often fall to the drivers. Ridesharing companies offer zero collision/comprehensive during Period 1, and once a passenger is assigned, it is contingent. This can be an expensive gap.

Hanik found this out first hand. "I was driving for Uber and was hit by a drunk, uninsured motorist. There were passengers in the car at the time. I had uninsured motorist coverage on my personal policy, but when I informed my insurer I was driving for Uber, they refused to cover me and have since cancelled my policy."

It gets worse. To reduce premium prices, Colby dropped collision/comprehensive from his 2013 Nissan Juke.

"When I contacted Uber's insurer, they informed me that I was not covered under their collision and comprehensive policy since it wasn't mirrored in my personal insurance. I have had my claims denied by all parties and am now on the line for $5,300 worth of damage to my car," says Hanik.

While this is an unfortunate situation for Hanik, his insurer is within its legal right to deny his claim. Most personal auto policies have a clause that excludes commercial activities, and some car insurance companies have made amendments in recent years that go even more in-depth to specifically say driving for TNCs voids your coverage.

"If you're going to rideshare, make sure you have a rideshare-friendly policy," advises Harry Campbell, founder of the blog site “The Rideshare Guy”. "Many carriers refuse to cover rideshare drivers and will cancel your personal policy if they find out.”

Additional rideshare considerations

As a passenger, you’ll be in the dark when it comes to the vehicle’s background.

"A huge downside to working as a rideshare driver is the wear and tear placed on your personal vehicle. Taxi drivers typically drive 50,000 miles a year, putting 50,000 miles on a personal vehicle will quickly devalue the vehicle," says Dave Sutton, spokesperson for the for-hire transportation awareness campaign website “Who's Driving You?”

"One thing most new drivers tend to overlook is the cost of operating their vehicle. It's imperative that you take this into account when calculating your bottom line. Gas will be a driver's number one expense," warns Campbell.

"Although Uber and Lyft offer a lot of flexibility in work hours, to really maximize earnings, the best times to drive are Friday and Saturday nights, which means you'll need to be able to handle the drunk and disorderly," advises Campbell.

Finally, most of the power remains in the hands of rideshare companies. "TNCs can unilaterally raise their commission amount at any point. Uber recently raised its percentage to 25 percent in numerous cities and is testing a 30 percent commission in two cities," says Sutton.

It’s enough to give drivers and passengers pause when considering ride-hailing apps. However, insurers are starting to step up, offering rideshare auto insurance policies in certain states, making the added protections these policies offer a no-brainer.

As a passenger, by knowing what’s required from your driver, you can be smart about when you choose to use rideshare services.

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