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hidden dangers "permissive use" Limitations in your car insurance policy

Dropdown limits:

Oftentimes there are significant reductions in coverage amounts on insurance policies even when the authorized user has an accident. One of these reductions is called “dropdown limits”. Dropdown limits mean that if someone has an accident while borrowing your car, the liability limits are reduced to the state minimum. For example, California requires minimums of only $15,000 per person for bodily injury (BI) / $30,000 per time maximum for bodily injury (BI) / $5,000 per person for property damage (PD).

Example: Driver A has a full coverage insurance policy with permitted use and his liability coverage is $100,000 per person (for BI) / $300,000 per ride (for BI maximum) / $50,000 per time (for PD). His policy has a “dropdown limit” clause. Let’s say he loaned his car to a friend (Driver B) and that friend had a serious accident with a third party bodily injury of $65,000 and he totaled the other car of $28,000. In this scenario, a “drop-down” is in effect and most of Driver A’s policy you will pay is $15,000 for injuries to other people and $5,000 for their vehicle which is clearly not enough. In this case, Driver A is legally liable for the balance of damages because he is the owner of the vehicle; $50,000 for injuries and $23,000 for the car. If Driver B has coverage, his coverage will be secondary and its limits will then apply until you run out as well. Otherwise, the other party is likely to sue Driver A.

Double deductions:

One coverage available with your car insurance is called collision insurance. Collision insurance protects your vehicle from damage caused by hitting another object. Any other vehicle, building, etc. Collision coverage has a deductible which is the “out of pocket” amount you have to pay first before the insurance company steps in to repair or replace your vehicle. Discounts can usually range from $100 to $2,500 but most of the time it’s either $500 or $1,000.

It’s how the “double deduction” restriction works. If an unnamed driver has an accident while driving a vehicle with your permission, the deduction is doubled from the collision. Hence your $500 deductible is now $1,000, or your $1,000 is now $2,000. Hopefully your friend who borrowed your car is willing to share and pay the extra deductible.

Sometimes the “double deduction” restrictions depend on the age of the driver who is borrowing your car. For example, the collision deductible only doubles if the driver is under 25 years old.

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