Do Ride-Share Drivers Need Special Car Insurance?

man and woman sitting in a car looking at phone

Ride-share companies such as Uber and Lyft insure their drivers when they're on a job, and you might think that'd be enough coverage. But hang on—it may not be if you want to be in compliance with the policies of the ride-share company and your auto insurer.

Your car insurer wants to know your vehicle is used for ride-share so it can adjust your risk pool and policy premium accordingly. You'll also want to make sure you're covered during the handoff from your personal insurance to ride-share-provided coverage to avoid any coverage gaps.

Before you start picking up passengers, make sure that you have the right coverage to prevent major losses in the event of an accident.

What Kind of Insurance Do You Need to Drive for Ride-Shares?

Before adding any extra insurance, make sure you understand what coverage is required to be eligible for ride-share work. For instance, Uber requires that you maintain comprehensive and collision coverage on your vehicle throughout the time you accept rides through the app.

Additionally, you'll need to satisfy your private insurer's requirements for your vehicle being used for ride-share, which may include purchasing a special personal insurance policy. Insurance companies see you as a greater risk when you use your vehicle for work and may require greater coverage as a result.

You can add a ride-share endorsement—an addendum to your policy—to your regular car insurance coverage or get a ride-share policy. If you do not have an auto insurance policy that reflects the commercial use of your vehicle and you file a claim, the insurance company may deem that you have committed material misrepresentation.

Material misrepresentation means a policyholder misrepresented facts to get cheaper coverage. If discovered, material misrepresentation may result in the cancellation of a policy or non-renewal for the next term of the policy. For some policies, it may be possible to avoid cancellation if the correct difference on premium amount is paid up.

What Coverage Do Ride-Share Companies Offer?

Uber and Lyft both offer coverage that applies while you are on the job. But this coverage is limited, and changes through the work period depending on whether you have passengers in your vehicle.

The parts of the ride-share process are divided into different periods with different associated coverages:

  • Period 0 is when you operate the car on your own time for your own activities. Your ride-share-provided insurance will not come into play at all during this time and you'll have to rely on your own insurance.
  • Period 1 is when the app is on and you're waiting for an assignment. The Period 1 gap is the biggest concern for ride-sharing drivers because it can create a gray zone where you are operating your personal vehicle for work but not working yet. If you were to get into an accident, there may be some debate about who pays out. Having extra coverage that applies to this time can save you money and hassle in the long run. During Period 1, both Uber and Lyft offer third-party liability of $25,000 in property damage per accident and $50,000 in bodily injury per person with up to $100,000 in bodily injury per accident.
  • Period 2 is when you are on the way to a pickup, and Period 3 is during an official ride. During these periods, the ride-share-provided insurance kicks in fully. Any accidents that occur then would be covered under the company's policy. Both Uber and Lyft provide $1 million third-party liability, uninsured or underinsured motorist bodily injury coverage and contingent collision and comprehensive which can pay out the actual cash value of your vehicle minus your deductible.

Does Driving for Ride-Sharing Services Increase Insurance Cost?

Driving for a ride-share company will increase your premiums somewhat as you add a ride-share-specific policy or endorsement.

You may also see your premium increase because you've had to add collision and comprehensive coverage. These coverages are not usually required by law and drivers often take them off older cars, but ride-share companies may require it no matter the age of the vehicle.

What Can You Do to Save on Car Insurance Costs?

If you're looking to drive for ride-share as a side hustle to make a little extra cash, the extra insurance coverage might cause you to feel like you're starting off in the red. But due to the vulnerabilities of leaving yourself underinsured in the event of both an accident or an insurance discovery of material misrepresentation, it's a cost worth paying.

To lower your immediate expenses, look into insurance policies that are designed specifically for part-time gig workers. Some will analyze unique data points including things like your star rating to get you a better price.

You can also make sure your credit is improving right before signing up for car insurance. Insurers in many states use what's called a credit-based auto insurance score to help price your rates. A good credit history can lower your costs, among other financial advantages, so check your credit report frequently and take care of anything that's potentially troublesome, such as high credit card balances.