Finally! The Truth About Car Rental Insurance
The first words out of almost everyone’s mouth when it comes to taking the insurance when they rent a car are, “I don’t have to take it because I am covered with my auto insurance policy.” Well, heed this warning: You may not be as covered as you think. A special thank you to Cay Insurance Services' Jenny McNeal, CISR, who sat down and once and for all, straightened out this age old question, “Do you take the car rental insurance?”
There are two separate parts of your insurance that will apply to rental cars. The liability portion and the physical damage portion (comprehensive and collision).
“Most standard insurance personal auto policies will provide a transfer of coverage to the rental vehicle for liability coverage with no additional charge,” says Jenny. In other words, whatever you would pay for your own car, you will pay for with the rental.
If you have physical damage coverage on your personal vehicle, then that coverage should transfer to a rental car as a non-owned auto. Just like your own personal vehicle, you are responsible for any type of damage that happens to the rental car while it is in your possession, even if it is not your fault. So if a tree falls on the car because of a thunderstorm, you would still be responsible for this damage.
However, there are still reasons to purchase the rental car company coverage, referred to as the loss damage waiver (LDW).
“Standard personal auto policy language states that it will pay for direct and accidental losses to a non-owned auto, but it will not necessarily pay for indirect losses,” Jenny says. Which means if you return a rental vehicle in damaged condition, your personal insurance will pay for the actual damage to car, whether it is a ding or scratch or a broken windshield (direct loss). What your personal auto policy may not cover is if the car is damaged to the point where it has to be sold for salvage. Rental car companies do not always decide to repair the damages to their vehicle but rather they sell it for salvage. The difference in price between what the car sold at and the value of the vehicle before the accident (indirect loss) would come out of your pocket.
Here is an example:
Per an article in Property Casualty 360, December 2007, the insured driver rented a Ford Freestar with an estimated market value of $26,500 and brought it back damaged. The cost of repairs, loss of use and appraisal fee totaled $7,800. The rental company chose not to repair the vehicle but to sell it at a salvage auction, where it brought only $11,700. The renter received a bill for about $14,800, or the difference between the before and after values. The renter's personal auto policy paid only the estimated repair costs, leaving a balance of almost $7,000. Had they have purchased the loss damage waiver they would not have had to pay that pill.
Some personal auto policies will also not pay for the rental car company’s loss of use income for the period of time in which they are not able to rent a vehicle while it is in the repair shop (also indirect loss). These fees could then fall back on the renter who damaged the car.
By purchasing the loss damage waiver (LDW) coverage from the rental car company you can buy yourself peace of mind that you would not be responsible for any expenses associated with diminution in value, loss of use, or any other possible gaps in coverage between your personal auto policy and the rental company’s contract.
Keep in mind that even if you purchase the loss damage waiver (LDW) you could void this coverage by not abiding by the rental company’s contract. Most rental car company contracts will include a clause which states that their coverage is void if you allow an unauthorized or unlisted driver to use the vehicle, using the vehicle while intoxicated or if the vehicle is stolen because you left it unlocked or the keys in it while running. The other thing is that if you are overseas or in Mexico your personal auto policy will cease coverage so you should definately take the rental company policy.
If you do not own a vehicle and have not already purchased a Non-Owned auto policy, then you should purchase the rental car company liability coverage as well which will be an additional fee.
Also important to note if you decide not to purchase the rental car company’s coverage and use your personal auto policy, you will then be responsible for paying your policy’s deductible. For some people this deductible could be up to $1,000. Considering that most rental car companies charge between $10-$30 per day for their LDW coverage, your out-of-pocket expense could be far less purchasing their coverage.
There is coverage provided by some credit cards if you are using that card to pay for the rental. The card’s coverage is also considered to be an excess coverage to your personal auto policy and is limited to the direct losses. Again, that credit card would not pay for the rental car company’s indirect losses and you would get stuck holding the bill.
Always be sure to check with your insurance agent about the coverage that is provided for a rental car or check your insurance policy contract. Jenny offers up her advice, “A good way to find the coverage information in your insurance policy contract is to do a search for ‘non-owned auto’ in a PDF copy and see how coverage applies. Ask for a copy of the rental agreement ahead of time or search the rental car company website for a copy their contract and carefully read it to find out what you are responsible for. Doing this before you get to the counter when you are in a rush to pick up your keys will give you a better understanding of what you should buy.”
Jenny also says to make sure that you don’t confuse a CDW with an LDW, “They cover different things and you get holding the ball for anything that is not covered.”
So do we have an answer? “Anytime anyone asks me if they should take the insurance on a car rental I tell them better to be safe than sorry. Take the insurance.” Sounds pretty safe to me.
Jenny McNeal is a 19 year veteran of the insurance industry and has written home and auto coverage in almost every state in the country on everything from tractors to tanks. She can be reached at 404-857-0468 or firstname.lastname@example.org
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