I’m a big believer in the sharing economy. I think it makes great sense for individuals to share the things they own but aren’t using. Everybody wins when you rent out your home, car, bicycle, or services: You earn money, and your customer gets what they need for less.
However, there’s one aspect of the sharing economy that gives me pause: the issue of insurance when ridesharing.
It’s true that anytime you use a peer-to-peer sharing model, there’s the possibility for disaster — as several well-publicized cases of Airbnb abuse have shown.
But automobiles are dangerous in a way that apartments are not: over 37,000 people die in road crashes in the United States each year, and another 2.35 million are injured or disabled. Every time you get into a car, you put yourself at a (not insignificant) risk. And if you’re ridesharing, it’s not entirely clear who will be on the hook should something happen.
Here’s a breakdown of the insurance issues you might face if you become a driver for a ridesharing company:
The Problem with Ridesharing Insurance
You’re Not an Employee
A driver for a traditional taxi company is directly employed by that company, which means the company’s automobile insurance covers that driver. Rideshare companies make sure to describe themselves as facilitators of rides and shares — so their drivers are NOT their employees.
What this means is that the driver is required to have her own automobile insurance. In addition, the rideshare companies require that passengers render the company harmless in case of an accident. Lyft, Uber, and the like want to be seen as a third party facilitator separate from whatever occurs during the actual ride.
The Company’s Insurance Might Not Cover You
If you’re involved in a major accident while driving for one of these companies, there’s often a $1 to $2 million commercial policy available. That being said, it’s not necessarily enough for a major accident, and the companies seem to focus on covering your passenger and damage to other cars and their passengers — rather than all individuals who might be affected.
For instance, an Uber driver in San Francisco caused a major accident that resulted in a fire hydrant being sheared from its base, flying into the air, and landing on a pedestrian. Uber is claiming it’s not liable for this accident. The driver who caused it has insurance, but his policy does not include excess liability — which is what would be necessary to cover the damages to the injured pedestrian, as well as the other damages resulting from the crash.
Since Uber specifically (and the rideshare companies in general) ask their drivers to not hold the company liable, there’s not much a driver can do. (In this particular case, the injured pedestrian is suing Uber for damages.)
You Can’t Get the Coverage You Need
Further complicating the issue is the fact that a potential rideshare driver often can’t get appropriate coverage for himself even if he wants to. Personal automobile insurance won’t cover your car if you’re using it for commercial purposes — and commercial automobile insurance (used by limos and taxis) won’t cover any car not registered specifically as a commercial vehicle. It’s a Catch-22.
The Bottom Line
Several states are currently trying to hammer out regulations that will help clarify the insurance and liability issue for ridesharing. Until there’s a clear-cut solution to the problem of rideshare insurance, it might be safer to find other ways to make money.
Have you tried Uber or Lyft? Would you consider driving for them?
{ read the comments below or add one }
My daughter, alone and not ridesharing, had a minor fender bender with a van. She and I are now being sued. My auto policy limit is $100k per person, which I thought was plenty. But it’s not. Now my (and my collegiate daughter’s) retirement and other assets are at huge risk because of one crash. I do not have an umbrella policy and cannot get one now because of the litigation. There is no way I would recommend ridesharing to anyone as a source of income.
You know when I first heard about Uber and Lyft this was the first thing that crossed my mind. I figured there had to be a catch. Thanks for confirming that it’s not so cut and dried and an easy way to make money.
There are definitely gotchas. And those advertised income people are getting is probably inflated as well. I bet the number doesn’t include the cost of operating and maintaining the vehicle!
Hmm…
I didn’t realize that drivers of rideshare companies take such a big risk, relatively speaking. I wonder if drivers can cover themselves with an Umbrella Insurance Policy? It’s an option worth exploring because there is quite a bit of extra money to be had on the weekends as a ridesharing driver.
I am sure some umbrella policies still covers it, while others wouldn’t. It’s best for the particular individual to investigate for sure.
On the other hand, I hope that using an umbrella insurance as what’s essentially car insurance won’t become popular because I don’t want umbrella policy premiums to go up too much!