Car Rental 101
How does a consumer know whether to buy a rental company's insurance, often called "collision damage waiver"? Many consumers decline the collision damage waiver coverage offered by the rental company because their car insurance policy already includes comprehensive and collision coverage. However, there are limits to what your car insurance policy's comprehensive and collision will cover.
Listed below are some of the costs which result from an accident in a rental which may not be covered on your car insurance policy, but usually are covered on the rental company's collision damage waiver. As with all other types of insurance, the decision whether to purchase the collision damage waiver is a personal one to be made by each policyholder and you should check with the rental company exactly what is covered.
- How does the value of the rental car affect what I would have to pay in the case of an accident? The personal auto policy covers the lessor of the “actual cash value” of the vehicle or the amount “necessary” to replace or repair the damaged property. The rental agreement may very well contractually obligate you to reimburse the rental company for the “full value” of the vehicle. The personal auto policy also does not cover any "diminution" of value (if the market value of the vehicle after repairs is less than before the accident.)
- Who takes care of inspecting the damage? There may very well be disagreement over the value of the vehicle or the amount charged for labor and material to repair it. Your auto policy’s appraisal clause may be invoked with its accompanying costs. More importantly, the insurance company has the right to “...inspect and appraise the damaged property before its repair and disposal.” However, the rental company, unlike you, is not contractually obligated to the insurer... it may choose to make repairs immediately, potentially resulting in a lack of personal auto policy coverage because of failure to comply with this contractual condition. In any case, purchase of the collision damage waiver usually allows the renter to "walk away" without headaches involved in adjusting an auto claim.
- How does the rental company get paid for any damages to one of their cars? The rental agreement may require immediate reimbursement for damages, and it is customary practice for the rental company to charge your credit card. This can create significant debt, “max” out the card’s credit limit (perhaps shortening a vacation or business trip) or result in litigation.
- Am I responsible for a rental car’s loss in value? Rental agreements often make the renter responsible for any loss in value beyond normal wear and tear, regardless of the cause, and regardless of fault. In order for your personal auto policy to respond, you must insure one vehicle with both collision and other-than-collision insurance (often called "comprehensive" coverage.) If not, your policy will not respond to rental car damage and loss of use claims.
- Am I responsible for a rental car company’s loss of use of that car? You will most likely be responsible for the rental company’s loss of income on the damaged unit. Your policy has limited coverage for these charges.
- What other expenses would I be responsible for? The rental contract may make you liable for various “administrative” or loss-related expenses such as towing (e.g. one insured was charged for a 230-mile tow), appraisal,claims adjustment, storage, etc. Some of these expenses may not be covered by your auto policy.
- Where am I covered? The personal auto policy normally does not provide physical damage coverage for motorcycles, mopeds, motor homes, or other vehicles that are not private passenger autos, pickups, vans, or trailers. In addition, use of covered vehicles is limited to the U.S., its territories and possessions, Puerto Rico, and Canada (the rental agreement may also exclude operation outside a specific geographical area). If you rent a trailer (U-Haul, camper, trailer, etc.),coverage is limited to $500.
- Who can drive the rental? The personal auto policy may have limitations on the use of vehicles that are not otherwise excluded by the rental agreement collision damage waiver. Also, the personal auto policy may include an exclusionary endorsement for certain drivers or may apply only to designated individuals -- the collision damage waiver will probably also only apply to certain individuals, but operators for which no personal auto policy coverage is available may be afforded protection under the rental agreement by adding them as designated drivers.
The purchase of the rental car company’s collision damage waiver for short-term rentals may provide you with peace of mind while on vacation or business, and it could save you from a lot of inconvenience and lost time and money. Your agent can also help you understand exactly what is covered on your car insurance policy and give you more information about collision damage waivers.
Copyright 1999 by Independent Insurance Agents of America. All rights reserved. Reprinted with permission.