Should I Purchase Rental Car Insurance?

Millions of Americans rent cars every year, whether for trips to see relatives or a long distance vacation. Since many will make long distance trips in a rental car, it’s critical to ask about one of the most frequently asked questions: “Should I purchase the insurance offered by the rental car establishment?”

The following may help you decide whether or not the loss damage waiver is worth purchasing from a rental car company.

DAMAGE WAIVER (LDW) & YOUR AUTOMOBILE POLICY

Here is some excellent news: In many scenarios, a personal auto insurance policy contract will extend coverage to a rented vehicle. With that said, don’t get too excited! There can be other costs included with damage to a rental vehicle that most policy contracts will not cover. For this reason, be cautious when considering not* to purchase the damage waiver offered by the rental car establishment.

On your personal automobile insurance policy, “Collision” insurance provides coverage on your vehicle for various damages resulting from an collision with another vehicle or object. “Comprehensive” (often called “Other Than Collision”) provides coverage on your vehicle for theft or vandalism, falling objects and other scenarios that are not collision related. If you have a car loan, your lender will have you buy both. If you pay off the loan, the choice to buy physical damage coverage (collision & comprehensive) is up to you.

Your personal auto policy contract will only extend coverage to the rental car if your policy has at least one vehicle that includes the physical damage coverage. For example, if you get in a collision with a rental car, you need to have “collision” coverage on at least one automobile on your personal auto insurance policy. But if the rental car is stolen, or damaged in such a way that is not collision related, you will need to have “comprehensive” coverage on at least one auto on your personal automobile policy. The point is, if your personal auto insurance policy excludes the coverage type that would cover damage to the rental car—and you don't buy or violate the terms of the damage waiver—you will become personally accountable for the damages that were done to the rental car!

On the contrary, the loss damage waiver offered at the rental counter will most likely cover the damaged rental vehicle even if you do not carry the coverage on your personal auto insurance policy.

LIMITATIONS IN YOUR PERSONAL AUTO POLICY

What else might you possibly owe the rental establishment following a loss or accident? Some of the charges may incorporate administrative fees and even the depreciation in value of the vehicle after the repairs—neither of these expenses are covered by your personal auto policy contract.

Also, nearly all personal auto policy contracts will only pay up to the actual cash value (ACV) of the damaged automobile. If the contract requires the damaged rental’s replacement cost, the ACV payout amount might not be adequate to cover the entire expense.

Again, in contrast, most loss damage waivers will cover these expenses.

Also, the rental contract will most likely require that you cover the rental company’s “loss of use.” These are expenses that happen when the rental company loses income from the damaged vehicle. This cost might be just a few hundred dollars but some policies may cover this up to a certain amount per day. However, many do not include this coverage.

In contrast, the damage waiver will pay the full cost of the rental company’s loss of use.

NO CLAIM IS NECESSARY

If something does happen to the rental car, purchasing the loss damage waiver will give the rental agency the repsonsibility with dealing with the loss process. This prevent you from having to file a claim and possibly assist with keeping the cost of your insurance from going up. It will also keep you from having to pay any deductibles!

LIMITATIONS IN THE LOSS DAMAGE WAIVER

Don’t forget that the loss damage waiver is contractual. It will incorporate a list of stipulations that may terminate the contract if violated and leave you personally accountable for paying the costs of the damaged rental car.

Examples of such stipulations may include:

  • Damages to the rental car and was being driven by someone not specifically named on the contract.
  • Damages to the rental car while being driven on unpaved roads.
  • Damages to the rental car while being occupied by more additional passengers than available seatbelts.
  • Damages that occurs while towing a trailer.
This list is only a sample; the common loss damage waiver may incorporate more stipulations.

Moreover, the rental car loss damage waiver provides coverage on “diminished value,” which is the economic reduction in value of a repaired auto due to it now having a history of being in an accident. Nearly all auto policy contracts and many credit card coverages specifically exclude diminished value. If you decide to not purchase the loss damage waiver, you might be responsible for paying a diminished value claim of $1,500 or more.

ONLY DAMAGE DONE TO THE RENTAL CAR IS COVERED

One of the most important facts to remember is that the loss damage waiver only applies to damage to the rented vehicle. It is not a substitute for other coverages for liability, medical payments, uninsured motorist and every other personal auto insurance coverage.

OTHER OPTIONS

In addition to the damage waiver, nearly all rental car companies offer some optional insurance-type products. For example, a few may offer a liability protection that allows the option to raise the liability limits you already have on your own personal auto insurance policy contract. Depending on your current liability limits, this option may be worth looking at.

CONCLUSION

Choosing to buy the loss damage waiver depends largely on the insurance already available to you from other sources. For assistance in determining coverage you already have and comparing it to the rental company’s options, call your independent insurance agent today.

For business travelers: When you use a rental car on a business trip, that is considered an entirely different set of decisions, so again please talk with your independent insurance agent.