A must-read for renting a car | Third-party insurance and car insurance? Make sure the car is insured first so it’s easier to borrow!

If an accident occurs while lending your car, the owner will undoubtedly be extremely anxious, and the subsequent series of insurance and legal issues will only add to the headache. However, if the owner has purchased third-party liability insurance, there's no need to worry excessively, as the insurance company will handle all the procedures for you. Nevertheless, many car owners have questions about car insurance when lending their cars, such as whether third-party liability insurance follows the car or the person lending it. This article will briefly explain the points to pay special attention to when lending your car

Third-party liability insurance: Should it be based on the vehicle or the person? How to choose the most suitable type of insurance?

Third-party liability insurance, often shortened to "third-party insurance," protects a car owner from losses or damage caused to third parties in the event of an accident, reducing the risk borne by the car owner. If you want coverage for losses beyond those caused by third parties, such as damage to the vehicle itself or medical expenses, it is recommended to purchase "comprehensive insurance." More details about third-party and comprehensive insurance can be found onthis blog.

Remember this: third-party liability insurance is tied to the vehicle, not the person. When you lend your car, you are essentially lending out your car insurance. If the car is involved in an accident, you, as the car owner, are responsible for compensation or paying the deductible. Most car insurance policies in Hong Kong cover car lending, but some policies have restrictions or additional terms (discussed in detail in the "Precautions" section below).Therefore, before lending your car to others, make sure you understand the risks you may be incurring.

Specific compensation depends on the circumstances. Traffic accident compensation generally follows the principle of "assessing liability for negligence." Through negotiation between the parties or a court judgment, the person responsible for the accident (the one at fault) is required to provide compensation. There are three possibilities for determining liability: 1. The driver who borrowed the car bears full responsibility; 2. The driver who borrowed the car bears partial responsibility; 3. The accident was entirely caused by someone else. Depending on the degree of liability, the car owner may have to pay compensation themselves, pay a down payment, or seek compensation from different individuals

Most car insurance plans on the market currently have similar compensation terms for borrowing a car. As long as the driver's name isn't on the policy, the borrower is considered an anonymous driver.In the absence of specific policy terms, anonymous drivers are still insured, but there's an additional deductible.Note that the deductible is calculated cumulatively. If the borrower is under 25 or has less than two years of driving experience, the corresponding deductible will be added to the initial compensation the car owner must pay. For details on deductible calculation, please visitthis blog.

Precautions for lending out a car

When friends or relatives borrow your car, you might feel awkward asking as many questions as a rental company about their driving skills or whether they are a "hidden" driver. However, in the event of an accident, this is precisely where the courts and insurance companies will scrutinize your policy. Furthermore, since third-party liability insurance follows the vehicle, not the person, the owner still bears the loss after an accident. Therefore, if you decide to lend your car, it's best to carefully review your insurance policy terms, starting with the following points:

1. Verify the validity of your friend's or relative's driver's license. If the borrower drives without a license, the car owner may also be prosecuted.
   The eligibility requirements for borrowers in car insurance plans are generally the same as for the car owner. There have been cases where car owners unknowingly lent their cars to friends whose driver's licenses had expired, and an accident occurred during the trip. Even if the accident wasn't caused by the friend, the friend could still be prosecuted for driving without a license. Furthermore, because the friend violated the car insurance terms, the insurance would be void, and the car owner would also be charged by the police with "allowing someone else to drive without a license."

2. Expensive cars may come with insurance restrictions.
   Some insurance companies have special terms for expensive or high-powered vehicles, such as strictly limiting the number of drivers or even prohibiting the owner from lending the vehicle. If you want to lend your luxury car or supercar to a friend, it's best to check with the insurance company first to avoid ending up with no coverage.

3. Vehicles used for commercial purposes are never covered by insurance.
   Before lending your car, it's best to clarify the purpose of the loan. Because insurance for private cars and commercial vehicles is completely different, insurance policies generally state that if an insured vehicle is used for commercial purposes (including transporting goods for payment or providing carpooling services), it will not be covered regardless of who is driving it.

4. Understand what to do in case of an accident.
   If an accident occurs and the driver is not one of the drivers listed on the policy, the claims process becomes more complicated. First, as the car owner/policyholder, you need to prove that you actually lent your car. Generally, the insurance company will still process the claim, but the accident investigation process will be longer. If the driver did not hold a valid driver's license, as mentioned earlier, the insurance will be void, and you may be prosecuted and held liable for the accident. 

Frequently Asked Questions about Third-Party Insurance

1. Is it necessary to buy car insurance?

   Under Hong Kong law, all car owners are required to purchase third-party liability insurance to protect against the risk of bodily injury or death to a third party in the event of an accident. If a car owner violates the relevant regulations by failing to purchase third-party liability insurance, they may be fined HK$10,000 and imprisoned for 12 months, and may have their driving license suspended for 12 months to 3 years

2. What documents are needed to purchase third-party liability insurance? You only need to prepare the following four documents to purchase third-party liability insurance:

   1. ID card

   2. Valid license plate

   3. Vehicle registration documents, also known as "license plates"

   4. Renewal notice (if any)

3. Are there any age restrictions for purchasing third-party liability insurance?

   Insurance companies typically specify the minimum age requirement for policyholders and the age requirement for "designated drivers" in their auto insurance policies. While individuals under 25 can purchase auto insurance, they may have to pay higher premiums and deductibles

4. What factors affect the premium for third-party liability insurance? There are five main factors that influence the premium for third-party liability insurance:

   1. Vehicle model and year

   2. Policyholder's age

   3. Driving experience

   4. Accident record

   5. Previous vehicle insurance claims records (if any)

5. Will I be denied third-party liability insurance?

   When evaluating a car insurance application, the insurance company will also check the applicant's traffic violation records and claims history. If a bad record is found, the insurance company may refuse to insure the applicant or demand a higher premium

6. Do I need to notify the insurance company when I change cars?

   Because third-party liability insurance follows the vehicle, not the person, you must notify your insurance company when you change cars, as you may not be able to continue with the same policy. If the new car model is similar to the old one, the insurance company will determine the new premium based on the model, features, etc. However, if the new car is significantly different from the old one, the insurance company may require you to sign a completely new policy

AWM provides you with the most reassuring and comprehensive insurance support

To reiterate, please review the terms and conditions of your car insurance plan before lending your car. Of course, you can also contact your insurance company or agent directly for professional advice. Find insurance terms difficult to understand? The AWM team, specializing in car insurance services, has experienced live customer service representatives who can explain complex insurance terminology in simple and easy-to-understand language. www.awm.com.hk for neutral insurance advice and free quotes on various car insurance plans.