Driving for Uber seems like a pretty easy way to make some extra money, but there are a handful of factors that make it more complicated than you might expect.
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Many Uber drivers do make a decent living from driving people around, whether they do it full-time or only part-time on top of their main income, but it’s important to keep in mind that there’s more to driving for Uber than just signing up, getting approved, hopping in your car and driving people around. Here are some things to keep in mind if you’re thinking about becoming an Uber driver.
Auto Insurance Can Be a Sticky Situation
When I looked into becoming an Uber driver, auto insurance didn’t even come to mind, but my brain clicked as soon as I saw the word “insurance” during the sign-up process. It turns out, most insurance companies don’t offer coverage if you’re using your car as a taxi of sorts.
However, Uber does automatically give you its own auto insurance coverage, but it’s the bare minimum coverage that most drivers usually wouldn’t want (there’s a $1,000 deductible for collision coverage). This still may seem fine and dandy, but Uber’s insurance will only cover you if your personal insurance doesn’t.
What’s the problem here? The problem is that when you file the incident report with Uber, they’ll call your personal insurance company first to check if you have comprehensive and collision coverage (because Uber won’t offer it for you if you personally don’t have it), and when your insurance company finds out that you were driving for Uber at the time of your accident (or that you’re driving for Uber, period), a lot of experienced Uber drivers say that they’ll likely drop you like a rock and cancel your entire policy with them for violating terms. It turns out that most insurance companies don’t like it all if you drive for Uber.
This can make it a lot harder to find a new insurance company without your premium getting hiked–getting dropped by an insurance company is a lot like your credit score taking a dive.
So what are your options? There are a small handful of Uber-friendly insurance companies who don’t mind that you drive for Uber, but they could still deny your claim. However, there are some insurance companies that offer specific policies that give drivers full coverage while driving for Uber, but these companies are few and far between depending on what state you live in. In Indiana, for instance, Erie Insurance and Geico both offer a policy aimed at Uber drivers, but I personally have yet to find an insurance company that can give me a quote that isn’t astronomically more expensive than what I pay now.
You can also buy commercial/business insurance pretty much from any insurance company, even if they aren’t Uber-friendly with their personal policies, but these types of policies are, again, usually really expensive.
Uber Takes a 20% Cut
While this isn’t too surprising to hear, it’s often something that you don’t think about. Uber has to make money somehow, and it does that by taking a small portion of your earnings.
20% isn’t a whole lot, but it can add up. If you give a ride that ends with a $15 fare, Uber takes $3 of that, leaving you with $12 in cold-hard income. That’s still a decent amount, though, but if you end up grossing $600 per month in fares, Uber takes a whopping $120 of that. So don’t base your income solely on what the fares themselves are.
You Pay All of Your Own Taxes
On top of Uber’s 20% cut, you also have to pay 100% of the taxes owed on that income. Welcome to the life of an independent contractor!
When you’re an employee at a company, they’ll pay around half of your FICA taxes while you pay the other half (on top of your income tax that you’ll need to pay, which is likely withheld). However, if you’re an independent contractor, you have to pay every penny of your FICA taxes. You’ll receive a 1099 when tax season approaches, instead of a W-2.
You can do a handful of things to minimize your tax payments, like making sure to write off every possible expense that you can. It might be best to talk with an accountant about your options.
Your Car Must Be Newer and Have Four Doors
If you’ve always wondered why you only see Uber drivers driving newer cars, that’s because Uber requires drivers to do so.
At the time of this writing, your car must be a 2005 or newer, and it also has to have four doors, so you’re out of luck if you drive an older vehicle or a coupe, as Uber won’t let you use a car like that.
Your car must also not have any cosmetic damage or mechanical issues. This isn’t a requirement per se, but it could affect your driver rating if a passenger is put off by those squeaky brakes.
The Approval Process Can Take a While
When you go to sign up to be an Uber driver, you’ll need to go through a background check and a driving history check. These things aren’t instantaneous, so it will take at least a few days to get approved to drive, and sometimes even longer.
Some Uber drivers have told me that it took months to get them approved because something came up on their background check and Uber had to check up on it through other sources. It usually turns out to be nothing, but it’s simply Uber doing their due diligence.
Your Car Maintenance Costs Will Go Up
You probably know that you’ll be spending more on gas when you start driving for Uber, but with gas prices this low, that might not be a big concern for you. However, what should be a big concern is your car’s maintenance costs.
These costs will go up the more you drive your car around. You’ll need to get oil changes more often, and you’ll need to get parts replaced more often than normal. Plus, when you put more miles on your car and drive it around a lot more than you have been, the chances of something breaking down increase significantly.
My advice? If you plan on driving for Uber, find a reputable mechanic and become his friend.
In the end, it’s not quite as simple to sign up for a ridesharing service like Uber or Lyft, but it’s not too overly complicated either, just as long as you can get the whole insurance mess figured out. Lyft has been known to be a bit easier to sign up for and get approved, but they also have a higher deductible on their insurance ($2,500 instead of $1,000), so keep that in mind.
Image Credits: Uber, Pictures of Money/Flickr, Sean McMenemy/Flickr, Chris Potter/Flickr, Ryan Ruppe/Flickr, Bob n Renee/Flickr
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