MSN Money has a great article on the consequences of loaning a car to someone who is involved in an accident. Although the article takes a tongue and cheek look at the accident involving Tiger Woods, it provides helpful insight into what you can expect if you loan your car, and it is involved in an accident.
Perhaps most insightful is what happens if you loan your car to an uninsured driver. If the uninsured driver who borrows your car causes the accident, your insurance will be 100% responsible for covering damages, including any injuries that occur. If your uninsured friend is not responsible for the accident, but is injured, the other person’s insurance company will usually pay. But what happens if the other driver is uninsured or carries too little insurance?
If you have uninsured (UM) or underinsured (UIM) motorist coverage on your car, your insurance company will pay for your friend’s bodily injury. In these cases, your friend is treated as an insured under the policy, just as you would be. He would be entitled to the same benefits as you.
What happens if you don’t carry insurance? If you loan your car to someone who doesn’t have insurance, you have created a worst case scenario. Not only are you violating Kentucky law, you’re setting yourself up to be personally responsible and criminally liable for the damages caused by your uninsured friend, including repayment of some benefits, like PIP, that do not depend on fault.
If you must loan your car to someone, at least understand the consequences if your car is later involved in an accident. Make sure that you carry sufficient insurance to protect you and your friend. Under no circumstance should you drive or allow someone else to drive your car without insurance.