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If I have full coverage car insurance and give my friend permission to drive my car, will my insurance policy cover that person and myself?

Yes, your car insurance would provide coverage. You might think your friend's car insurance would kick in and pay for damages, but that's not the case. Your car insurance policy insures "you, any relative, and anyone else using your car if the use is (or reasonably believed to be) with your permission." So if your friend borrows your car and causes an accident, your insurance pays for the damages; however, you'll still owe the deductible.

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But what if the accident is horrific, seriously injuring other people and causing severe damage? Your liability coverage would cover the driver and all the passengers in the vehicle for bodily injury and property damage caused by your car. Liability coverage would also pay your legal fees if you were sued.

If the damage exceeded your insurance liability limits, though, the courts could attach your personal assets, such as your home, to recover damages. This is why it's critical to make sure you have enough liability coverage to meet your needs—you shouldn’t go by the minimum liability limits your state requires.

Insurance companies can also share the cost of an accident in what's known as a "pro rata" case. If your friend was at fault in an accident, your insurance would pay the full cost of the accident and would then seek a proportionate share of compensation from your friend's insurance company.

Of course if you chose to forgo collision coverage, which is optional, your insurance would not pay for damage to your car if your friend crashed it. Liability coverage, which is required in almost every state, only covers damage to other people's property, not to your own.

For more, see when your friend crashes your car: the rules of auto liability.

Last updated: Jan. 5, 2011 Redesign Survey