Substitute Vehicle Insurance: What You Need To Know

A substitute vehicle is any vehicle that you do not own but need to drive when your insured vehicle is unavailable. For example, you might need to drive a rental car while on vacation, a loaner vehicle while your car is being serviced, or a borrowed vehicle from a friend or family member. While your personal auto policy may provide some coverage for temporary substitute vehicles, it's important to check with your insurance provider to understand the specific coverages and limitations. In some cases, you may need to add Substitute Vehicle cover to your policy for an extra cost.

It's also crucial to notify your insurance company when replacing your old car, as this can impact your insurance rates and coverage. Most insurance providers offer a grace period, but failing to inform them within a reasonable time frame may result in a lack of coverage in the event of an incident.

Rental cars while on vacation are usually not covered by personal policies

Personal car insurance generally covers rental cars for personal use, but only with the same coverage limits and deductibles as your primary vehicle. So, if you have a low level of coverage on your personal car, you will also have a low level of coverage in a rental car. For example, if you have a $10,000 liability coverage limit on your personal car, you will also have this limit when driving a rental car. This may not be sufficient, especially if you are driving in a new area or are unfamiliar with the rental vehicle.

Additionally, personal policies do not usually cover the "loss of use" fee charged by rental companies, which is the fee for lost income while the rental car is being repaired. This can be an unexpected expense if you are in an accident and your rental car needs to go to the repair shop.

Personal policies also typically do not cover the diminished value of a damaged rental vehicle. This is the decrease in the rental car's value after repairs are made. You will be responsible for this cost, which can be significant.

If you are concerned about these gaps in coverage, it is worth considering rental car insurance. This can be purchased from the rental car company or, in some cases, from a third-party insurance company. Rental car insurance can provide additional coverage for these fees and give you peace of mind during your vacation.

It is important to review your personal auto policy and understand the coverage limits and exclusions before deciding whether to purchase additional rental car insurance.

Loanded vehicles from dealers may not be covered by your insurance

Loaned vehicles from dealers may not be covered by your insurance. This is because insurance policies typically cover the vehicles you own, and a temporary substitute vehicle may not be included in your policy.

In some cases, your insurance may cover a substitute vehicle for a short period, usually 30 days or less. However, this varies depending on the insurance carrier and the specific coverages and limitations of your policy. It is important to check with your insurance provider to see what and who is covered.

For example, in the case of Coachman Insurance Co. v. Lombard General Insurance Co. of Canada (2011), an individual purchased a motor vehicle and required warranty repair work. The dealer provided a loaner vehicle while the repairs were being carried out. The purchaser was then involved in an accident while driving the loaner vehicle, and the issue before the Court was which insurance policy was primarily responsible for covering the claim. The Court held that the loaner vehicle was not a rental vehicle, and therefore the dealer's policy was the first required to respond, with the purchaser's policy being excess.

To avoid any confusion or unexpected costs, it is recommended that you review your insurance policy carefully and contact your insurance provider if you have any questions about coverage for loaned or substitute vehicles. Additionally, if you are planning to borrow a vehicle from a dealer, consider entering into a formal loaner or short-term rental agreement to clarify the insurance responsibilities.

In summary, loaned vehicles from dealers may not be covered by your insurance policy, and it is important to understand the specific coverages and limitations of your policy. Review your policy carefully and contact your insurance provider if you have any questions or concerns.

Borrowed vehicles are covered by the owner's insurance first

When it comes to borrowing a vehicle, it's important to understand how insurance works in this scenario. The general rule of thumb is that car insurance follows the car, not the driver. This means that if you borrow a car, you are typically covered by the owner's insurance policy, which takes primary coverage status. This is known as "permissive use", where the owner gives consent for another licensed driver to operate their vehicle. The owner's insurance policy will cover the borrower up to the policy limits, and in the event of an accident, the owner's insurance may pay for damages and injuries up to these limits.

However, it's important to note that this applies to irregular and infrequent borrowing. For example, if you're visiting family for the holidays and borrow their car, you're typically covered under their policy. But if you move back home for an extended period, you may need to be added to their insurance policy. Additionally, if you borrow a car without the owner's permission, this is considered "non-permissive use", and your insurance as the driver may be responsible for any damages and injuries resulting from an accident.

In some cases, if the borrower is also insured, their auto insurance could also pay out, depending on their policy and the specifics of the accident. If the borrowed vehicle is involved in an accident caused by another driver, the at-fault driver may be held responsible for the claim. It's worth noting that the owner's liability coverage will generally extend to the borrowed car, but comprehensive and collision insurance coverages may not. Therefore, it's recommended to check with your insurance provider to understand the extent of your coverage and any limitations.

Furthermore, certain situations may not be covered by the owner's insurance policy. For instance, if the borrowed vehicle is used for commercial purposes, such as delivering packages or ride-sharing, additional insurance or a separate policy may be required. Excluded drivers, who are specifically listed on the policy as not covered, will typically not be covered when driving the borrowed vehicle. In such cases, it's essential to consult with the insurance carrier to understand the specific coverages and exclusions.

Notify your insurance company when replacing your old car

When replacing your old car with a new one, it is important to notify your insurance company as soon as possible. This is because the new car may change some of the terms of your insurance policy and impact your insurance rates. While most insurance providers offer a grace period of 14 to 15 days, it is still a good idea to inform them promptly about any changes that could affect your policy.

Failing to notify your insurance company about the vehicle ownership change within a reasonable period can lead to problems with your coverage in the event of an incident. For example, if your insurance company provided a grace period of 15 days and you got into an accident 20 days after buying the new car without informing them, your provider may refuse to accept a claim or even cancel your policy.

Insurance providers calculate premiums based on various factors, and some of the most significant are the make, model, and year of the vehicle you drive. Insurance companies consider numerous details when determining premiums for different cars, including claims history and average repair costs. As a result, your insurance rates may decrease when you purchase a new car. For instance, a newer car with a better safety rating than your previous vehicle may result in lower premiums.

In addition to informing your insurance provider about the new car, remember to notify them of any other changes that could impact your policy, such as marriage or relationship changes, especially if they are related to secondary drivers on your policy. It is also important to inform your insurer if you assume joint ownership of your car, as this will change the risks associated with your policy and possibly your rates, depending on the other person's driving record.

You can add Substitute Vehicle cover to your policy for an extra cost

If you need to drive a vehicle other than your own, you may be covered by your insurance policy. A “substitute vehicle” is any vehicle that you do not own but need to drive when you are unable to operate your insured vehicle. This could include a rental car, a loaner vehicle, or a borrowed vehicle.

While your personal auto policy may provide some coverage for a temporary substitute vehicle, it is important to note that specific coverages and limitations can vary. Therefore, it is recommended that you check with your insurance provider to understand the extent of your coverage.

In some cases, you may need to add Substitute Vehicle cover to your policy for an extra cost. This can provide additional peace of mind and ensure that you are fully covered while driving a substitute vehicle.

For example, if your car is being repaired by one of your insurance company's nominated repairers, your standard policy may already cover you for a courtesy car. However, this coverage typically has certain limitations, such as not providing a substitute vehicle if your car has been stolen or damaged beyond repair. By adding Substitute Vehicle cover, you can have the flexibility to choose your own repairer and still be covered for a substitute vehicle.

Additionally, when renting a car, your personal auto policy may provide liability and physical damage coverage. However, it typically does not cover the diminished value for damaged rental vehicles or the loss of use of the rental vehicle while it is being repaired. With Substitute Vehicle cover, you can fill in these gaps and ensure you are fully protected.

It is important to review your insurance policy and understand the specific coverages and exclusions to make an informed decision about whether adding Substitute Vehicle cover is right for you.

Frequently asked questions