Rental Car Insurance – Should I buy It?

During the cold winter months, many New Englanders are making plans to travel for Winter and Spring breaks in warmer climates.  Many will be renting cars to get around.  Our Auto Insurance Specialists are often asked, “Should I buy the insurance from the rental car company?”

Following are a few things to consider:

Damage Waiver and Your Personal Auto Policy
In many cases, a personal auto insurance policy will cover damage to a rented vehicle.  However, there are other costs associated with damage to a rented vehicle that the policy will not cover. For this reason, careful consideration should be given to purchasing the damage waiver offered by the rental car company.

On your personal auto policy, “Collision” insurance covers your vehicle for damage resulting from a collision with another object. “Comprehensive” covers your vehicle for theft, vandalism, falling objects and other causes not resulting from a collision.

Your personal auto policy will only cover damage to the rental car if you have the appropriate coverage type on at least one vehicle on your policy. If your personal auto policy excludes the coverage type that damages the rental car—and you reject or violate the damage waiver—you will become personally responsible for paying all costs related to the damaged rental car out of your own pocket.  The damage waiver usually offered at the rental counter will cover the damaged rental car regardless of what’s covered by your personal auto policy.

Limitations in Your Personal Auto Policy
There are often other not-so-obvious rental company charges that pop up, following an event or accident.  These include administrative fees and the depreciated value of the vehicle after repairs—neither expense is covered by your personal auto policy. In addition, most personal auto policies only pay up to the actual cash value (ACV) of the damaged vehicle. If the contract requires the damaged rental’s replacement, the ACV payout may not be sufficient to cover the entire expense.  The damage waiver will cover all of these expenses.

Also, the rental contract could require you to pay the rental company’s “loss of use.” These are expenses they incur resulting from the inability to earn income from the damaged rental. This cost could be hundreds of dollars or more. Some personal auto policies will pay a limited amount for this expense; others will not cover it at all.  The damage waiver will pay the full cost of the rental company’s loss of use.

No Claim Necessary 
If something happens to the rental car, purchasing the damage waiver allows the rental agency authority to manage the claim process.  This will allow you to avoid filing a claim, paying a deductible, and possibly help keep the cost of your insurance from going up.

Limitations in Your Personal Auto Policy
The rental car company’s damage waiver is considered a contract. It will include a list of restrictions that, if violated, may terminate the waiver and leave you personally responsible for paying the costs associated with the damaged rental car. Some of the restrictions may include:

• Damage to rental while driven by someone not specifically named on the contract.
• Damage to rental while driven on unpaved roads.
• Damage to rental while it’s being occupied by more passengers than available seatbelts.
• Damage that occurs while pushing or towing.

Moreover, the car rental company’s loss damage waiver covers “diminished value,” the economic reduction in value of a repaired auto due to it having been damaged. Almost all auto policies and many credit card coverages exclude diminished value. What’s the impact to you? If you don’t take the damage waiver, you could get hit with a diminished value claim of $1,500 or more, depending on your type of damaged rental car.

Damage Waiver Covers Vehicle Damage Only
Perhaps the most important fact to remember is that the damage waiver only applies to damage to the rented vehicle. It is not a substitute for liability, medical payments, uninsured motorist, personal injury protection, or any other personal auto insurance coverage.

Other Products Offered by Rental Companies
In addition to the damage waiver, most rental car companies offer a few optional insurance-type products. For example, some may offer a liability enhancement that gives you the option to increase the liability limits you already carry on your personal auto insurance policy. Depending on your available auto liability insurance, this option may be worth consideration.

Others may offer options such as accidental death, trip cancellation, or damaged luggage insurance during the rental period.  Review your home, health and auto policies before accepting these options to be sure there is no duplication.

Conclusion
Based on all of these mentioned risks, you should seriously consider—and probably buy—the damage waiver from the rental car company. Deciding whether to purchase other products from the rental company, however, depends on your current insurance coverage.