The hidden risks of car-sharing programs

Car-sharing programs have sprouted up across the country. These services, such as Zipcar and AutoShare, allow members to rent cars at hourly rates. Because members don't own the cars, they avoid the hassle of maintaining and storing the vehicle.

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Nearly 400,000 members across the United States participate in car-sharing programs, according to CarSharing.net, a nonprofit organization that promotes the car-sharing industry.

But when you join a car-sharing club, will you have enough car insurance coverage? Inadequate coverage could put your financial well-being at risk if you cause an accident and are sued.

Here are five questions you should ask before signing up for any car-sharing service.

1. How much car insurance is offered?

Nearly all car-share companies provide some type of insurance to members who rent a car, says Kevin McLaughlin, a founding member of CarSharing.net.

The insurance coverage is generally included in the rental fee, says McLaughlin, who is also president of AutoShare, a Toronto-based car-sharing company that supplies vehicles in the United States and Canada.

Some car-sharing clubs may only provide your state's minimum required insurance for property damage and third-party bodily injury, says McLaughlin. The total coverage could be $25,000 or less in some states.

That may not be enough to protect you, especially if you are in a multi-vehicle accident, he says.

Car-sharing companies generally don't offer an option to upgrade the level of insurance you can purchase with a car rental, McLaughlin says. That's dangerous, because if you get in an accident that's your fault and the damages exceed the amount of coverage available, you could be on the hook for the difference.

To help prevent this from happening, make sure you know how much car insurance you have, and then decide if that amount satisfies you.

"It's not enough to know that coverage is there," McLaughlin says. "You should ask how much it is."

He says car-sharing shoppers should look for companies that provide more than $1 million in coverage with each rental.

2. Are my personal assets at stake?

Many people who use car-sharing programs don't own a vehicle but they may own a house, condo or other property. Such real estate and other assets could be at risk after an accident if the car-sharing company does not provide a driver with adequate insurance, says McLaughlin.

After your auto insurance limits are exhausted to pay for damage, you're still responsible for any remainder and can be sued for it.

Even if the damages are within the auto insurance limits, you may still have to pay money if you damage the car. Drivers who file an insurance claim usually have to pay a deductible (sometimes called a damage fee).

The car-sharing industry standard for such deductibles is between $500 and $750, McLaughlin says.

3. Does my personal policy extend to car sharing?

If you carry collision coverage with some companies, such as State Farm, you may be protected from the cost of any physical damage that occurs when you drive someone else's car with permission. That protection extends to car-sharing vehicles, says Dick Luedke, a spokesperson for State Farm Insurance in Bloomington, Ill.

However, different auto insurance companies have different rules in their policies, so check with your agent to be sure. Even if you do have coverage, it likely is subject to your deductible.

4. Do I have a secondary auto insurance policy?

If you file a claim on a car owned by a car-sharing service or an injured third party files a claim against you it's possible you could tap out the coverage provided by the service's insurance. So, it's important to know if you have secondary coverage from another source.

You could purchase a non-owner auto insurance policy from a standard provider, Luedke says. Another option would be to consider an excess liability policy or a personal liability umbrella policy, he says.

5. What are my state's insurance rules?

The rise in car-sharing popularity is fairly recent, and not all legislation has caught up to it, says McLaughlin. He expects changes as car sharing grows and new laws are created to make sure car-sharing members have adequate coverage.

"Each state has to make their rules," he says.

He suggests contacting your state's insurance department from time to time to see if any new insurance laws have passed that affect car-sharing services.