The ride-sharing apps Uber and Lyft are still business ideas in progress as both are trying to figure out how to address the insurance issue. When a person with a private auto insurance policy picks up a rider from one of the apps, the driver’s private insurance instantly becomes void. The reason is that private auto insurance is not designed to cover commercial vehicles, and your vehicle becomes a commercial vehicle when you pick up a ride-sharing fare. So what happens when there is an accident?

State Laws Are Changing

For years, Uber had a $1 million commercial insurance policy in effect that covered the passengers of ride-sharing companies. The problem was that Uber often made it difficult for passengers to use that insurance for various reasons. Recently, the state of New Jersey has made it mandatory that Uber and Lyft offer $1.5 million per incident commercial insurance coverage for all ride-sharing passengers. Many other states have similar laws in place that make it much easier for passengers to have their medical bills covered if they are ever in a ride-sharing accident.

What About Drivers?

When an Uber or Lyft driver has an accident, the driver has to worry about property damage expenses of their own and any other party they hit, as well as their medical expenses and the medical costs for pedestrians or people in other vehicles. If the driver only has a standard private auto insurance policy, then most insurance companies will deny coverage in the event of a ride-sharing accident. The result is that the driver would be financially responsible for all of the costs insurance would normally cover, which could be tens of thousands of dollars.

Are There Options?

Ride-sharing drivers have two options they can exercise to protect themselves in the event of a ride-sharing accident. Some insurance companies have started to offer ride-sharing insurance that will cover you in the course of your normal daily driving and if you get into a ride-sharing accident.

The driver’s other option is to get a commercial grade driver’s license (like a taxi driver would have) and then get commercial auto insurance. The private policy would be in effect when the driver is using their car for personal reasons, and the commercial policy would kick in when the driver decides to make themselves available on the ride-sharing app.

When you make money using a ride-sharing app and you do not attend to your insurance needs, then you are taking a huge risk. If you got into just one accident while ride-sharing and you do not have the proper insurance, then you could be looking at bankruptcy and the possibility of not ever having insurance again.

In most states, the passengers in a ride-sharing scenario are covered by a more than adequate insurance policy that can attend to all of their needs. But neither of the big ride-sharing apps have offered any insurance help to drivers. Since drivers are independent contractors, it is unlikely that the ride-sharing apps will offer any insurance help without being provoked by state laws. That means that ride-sharing drivers need to be smart and have the right insurance in place before they start taking ride-sharing fares.