Rental Car Insurance Yes or No?


I probably should have written this in May when it could have been helpful for your summer vacation, but better late than never. Traveling is a lot of fun. You don’t want a claim to ruin your vacation, so you need to make good decisions when you travel. One major concern when you fly to your destination is you don’t have your personal vehicle with you, so you need a rental car. A rental car of course, means rental car insurance. Do you have it already or should you purchase it? Well, it depends…

If you are renting a car, be prepared. Don’t wait until you are at the rental desk to ask questions. No one definitive answer about rental car insurance is right for everyone. It all depends on the type of personal auto insurance you have, possible credit card coverage (be careful) and the laws of the state in which you are renting the vehicle. Can you begin to see the many variables and possible problems impacting rental car coverage?

Coverage Options

Rental car agencies usually offer four coverage options for rental vehicles:

  1. Collision Damage Waiver (also known as loss damage waiver) provides coverage if the rental car is damaged or stolen. It waives financial responsibility for you. An important part of this coverage is loss of use charges while the rental car is in the shop. It also covers towing charges and related fees. If you purchase this waiver, this means the rental car company will not come after you for the damage to the car. You simply report it to the rental company and walk away.
  2. Liability coverage protects you if you injure or kill someone and are sued for these damages. If you have high liability limits, your personal auto policy may be sufficient.
  3. Personal accident protection covers medical costs for you and your passengers. If you have sufficient health insurance and medical on your personal auto coverage, you may not need this coverage either.
  4. Personal effects coverage insures personal items left in the rental car. Of course, I suggest you don’t leave valuables in the car. But your home or renter’s policy will cover your personal items outside of your home.

I’ve changed my mind on rental car insurance in the last year because I have seen problems when clients haven’t at least purchased the collision damage waiver from the rental car company. When you rent a car, you sign a legal contract with the rental car company and agree to abide by the contract. As my great friend, Butch Hofferbert, once said, “the BOLD print giveth and the fine print taketh away.” Believe me, this is so true with rental car companies. Unless you read and UNDERSTAND every word of the contract (they are long contracts and you, like me, probably do not read them), you should at least purchase the collision damage waiver from the rental car agency. Believe me, rental car companies have a team of attorneys who write rental agreements with every advantage for the companies. You are in a no-win situation.

Are You Covered?

Generally, your auto insurance coverage will extend to a rental car. If you are involved in an accident and hurt someone, your liability insurance would cover the costs of damages to the other vehicle and injuries to people. However, I give you my top five reasons why you should at least purchase the collision damage waiver offered by the rental car company:

  1. Administrative costs. The rental company may make you liable to pay administrative costs such as towing of the auto. One of my clients was charged for a 150-mile tow—not a small amount. Plus, they had to pay their deductible on the auto.
  2. Loss payment. The rental contract you sign may require immediate reimbursement to the company for any damages. The rental company has authority to charge your credit card which could seriously cut a vacation short. You may be reimbursed, but who knows how long that could take.
  3. Loss valuation. Claims on a car generally reduce the value of the car. If you rent a car, and it suffers a claim, you have reduced the value of the car. The rental car company may require you to pay the difference of the diminished value. Depending on the severity of the claim, we could be talking thousands of dollars. Are you willing to pay this amount out of pocket? While your auto insurance may cover the liability and property damage of the claim, none of the companies in my agency will cover diminished value.
  4. Loss of use. If you experience a claim in a rental car and the rental company cannot rent the car while it is being repaired, the lost income from the car can be charged to you. If you have a serious claim, and it takes 30 days to repair (I’ve seen this when repair shops wait on parts), and you rented the car for $50 a day, that would cost you $1500 plus your deductible. Does the rental car insurance seem expensive now?So many clients assure me they will be careful and nothing will happen. What if the accident is NOT your fault? What if you traveled to a major city, rented a car, spent the night in a hotel, and walked out the next morning to find your rental car gone (stolen)? Definitely not your fault, but still your responsibility. The car is recovered but stays in police impound for five days. The car is badly damaged, but not totaled. How many days will you have to pay for loss of use and what will the diminished value be? Another example would be weather damage. You can’t protect the car if you are driving in a hail storm. Again, the damage is not really your fault, but as I have said, it is still your responsibility if you signed the rental car agreement.
  5. Peace of mind. You take a vacation to get away from stress. If you have an accident on the first day, is your stress reduced when you don’t know what is covered? Do you worry your whole vacation trying to see what will happen? If it happens at the end of vacation, you go home and have to make contact from miles away. How many phone calls and emails? How soon will you know the loss of use and diminished value of the rental car? You can eliminate this stress. Purchase the rental car insurance. In this situation, you call the rental car company, they will send replacement car, and they handle the claim from that moment. You walk away without worry.

One of my clients recently had his car (not a rental car) stolen and recovered in Atlanta. It took two weeks to be able to see the car and inspect the damages. The storage facility would not take a picture of the car for him. He repeatedly called the police station without response. Once we were able to retrieve the car, it was completely stripped. If he had rented a car without the collision loss waiver, can you imagine the stress level? It’s simply not worth the additional stress in a loss situation.

A couple of other notes—if you are renting for your business, your personal insurance policy may not be valid. Also, if you are renting in a foreign country, all coverage from your personal auto is usually void.

Do your research BEFORE you are standing at the rental car counter and don’t let an uninformed decision ruin your vacay!