Why Do Rideshare Drivers Need Special Car Insurance?

Today's gig economy provides an alternative — or a supplement — to the traditional 9 a.m. to 5 p.m. way of doing things. And despite platform fees outpacing driver pay last year, rideshare driving is still a popular way to put money in your pocket. After all, Americans drove over 2.7 trillion miles in 2023, about 1,000 times the distance from Earth to Neptune. So why not drive for money? 

But before you drop what you're doing and put a little Uber or Lyft sign up in your car, consider this: From an insurance standpoint, picking up rideshare work is easier said than done. Ridesharing and delivery-network companies will let you ferry passengers, takeout food, and full-on shopping orders as long as you meet the criteria. For instance, to drive for Uber in the U.S., you'll need four doors, a valid license, at least 23 trips around the sun — and insurance. Probably special insurance. 

Why? Driving for a rideshare or delivery company is a commercial activity; rideshare work falls outside your personal insurance policy. That's where rideshare insurance policies come in.

What? Your personal insurance policy with a major carrier won't cover you while you drive for a rideshare or delivery company? What gives? It certainly sucks, but that doesn't mean you can go and cut or drop your expensive insurance policy. To drive for Uber or Lyft, you must carry the minimum car insurance coverage your state requires. Even then, drivers relying solely on their personal insurance policy might find themselves in a nasty coverage gap, depending on what they're doing at the time of a collision. Not great.

The biggest issue happens when a driver is logged in and awaiting a request. During this phase, rideshare companies like Uber and Lyft offer the least coverage: limited liability. Pair that with your provider not covering commercial activities with your standard policy, and you could end up paying out of pocket for the damage to your vehicle.

That's where rideshare insurance can bridge the gap. Depending on your insurance carrier, you might be required to add it to your existing policy. Let's say you're ready to start rideshare driving, and you log on to the app. Boom. You get rear-ended while waiting for a ride request. Not one of the worst rideshare horror stories, but it's not ideal. 

Since you weren't yet on your way to a pickup but you were technically on the job, even a personal policy with one of the best insurance companies might not cover you. That's why a rideshare policy is so important for rideshare hustlers. Unfortunately, adding that insurance can be pricey in certain parts of the country. New Yorkers, for example, can expect to part with an average of $305 per month to maintain their rideshare insurance. Ouch.

Granted, a rideshare or delivery company's commercial insurance policy will cover you while you drive to and complete rides using the app. But only up to an extent. For instance, Uber is quick to remind working drivers that they're on their own when driving offline, meaning not actively using the app. Things are a bit different when a driver hops online to start picking up passengers. Uber uses third-party limited-liability insurance to cover damage and injuries caused to other motorists up to $50,000 per person, $100,000 per accident for injuries, and $25,000 for property damage. The caveat: the coverage only applies when a driver is online and waiting for a ride request.

Then there's the trip itself. On the way to a ride or during a trip, Uber will cover up to $1 million for damage and injuries where a rideshare driver is found to be at fault. And, after a $2,500 deductible, and given sufficient personal car insurance coverage, Uber's commercial insurance may pay for repairs up to the cash value of the rideshare driver's car. Surprise, surprise: Lyft offers much the same coverage in the event of an online crash. But some sort of protection beyond your own policy and your rideshare company's coverage is a must for your peace of mind.