The next time a good friend asks to borrow your vehicle, you might want to pause before you hand over your keys. That "easy favor" could end up being a lot bigger than you expected.
What's the problem? It's simple: If your friend has an accident while driving your car, your insurance is on the hook. That could end up costing you plenty in the long run due to higher insurance premiums. If you get into an accident of your own at some point, you may even become hard to insure because the insurance company won't draw a distinction between the accident you had and the one your friend had.
Your insurance gets stuck with the bill when your friend is driving because insurance follows the car. When you let someone use your vehicle, you're also giving permission for your insurance company to act as his or her insurer -- even if your friend has insurance. The only way your friend's insurance will be involved is if the limits of your policy aren't enough to cover the damage done to any property and victims.
You could also be held more directly liable for your friend's accident through a vicarious liability theory known as "negligent entrustment." That might come into play if there's evidence that you knew your friend was a bad driver. In other words, be particularly cautious if your friend has a history of car wrecks.
Are you still willing to take the risk? Before you let go of those car keys, there's one more thing you need to check. Does your friend have a valid driver's license?
If you lend a car to someone that you either know or should have known doesn't have a valid license, you could be charged with a criminal offense. Similarly, you need to exercise good sense about friends who have a drug or alcohol problem, since that could also expose you to criminal liability.
It can be intimidating to deal with the insurance companies after a car accident -- whether you're the victim or the owner of one of the cars involved. Make sure that you have someone looking out for your interests.