Your auto policy and the rental car agreement

Most everybody has rented a car in their lifetime.  The big question that comes up is “am I covered by my insurance when I rent a car?”  Well, this is not such an easy question to answer.  With hundreds of companies writing automobile liability and physical damage policies, the easy answer would be to “read your policy”.  Who wants to do that?  After all, “I don’t even know where my policy is” or “you mean all those words mean something?”  Indeed they do!  Most insurance companies will tell you that your policy covers you while in a non-owned vehicle (i.e. a rental car).  But what coverage(s) are they giving you?  That’s what we’ll try and explain:

Liability
Most companies provide you with liability coverage regardless of the vehicle.  So if you’re in your neighbors car or a rental car, liability from your personal auto policy will follow you.

Physical Damage
Most companies will require at least one vehicle on the policy to have full coverage at which point, they will extend the physical damage to a rented vehicle.

Loss of Use
If you are involved in an accident while in a rental car, the rental car company will not be able to rent that vehicle until the repairs are finished.  The loss of income that the car company experiences is called loss of use.  The typical auto policy does NOT cover loss of use thus leaving you holding the bill.

Diminished Value
So you were in an accident that caused $7,000 damage to the car.  You have a personal auto policy with full coverage on your vehicles, so your insurance company will step in and pay for the $7,000 of damage.  However, rather than getting the car fixed, the rental car company decides to auction the damaged vehicle rather than fix it.  Let’s play this out…  Your insurance company offered to pay the $7,000 damage, but the rental company auctioned the damaged car for $16,000.  The book value of the car was $21,000.  Who pays the $5,000 difference?  You do!  Why?  Because you signed a car rental agreement stating that you were responsible for the diminished value.  Does your insurance policy cover diminished value?  Probably not.  There are a few companies that offer this either in their base form or by endorsement, but I would want to make sure either way.

So you may be thinking “do I need to purchase the insurance they push on me at the window”?  Let’s look at a few benefits to this sometimes-expensive coverage:

-You don’t pay a deductible.  The deductible on the damage waiver you purchase is $0.
-You don’t get charged for a claim.  Anyone that has looked around at changing insurance companies knows that their claims follow them.  Claims against the damage waiver do not show up on your claims report.
-Full loss of use coverage.  You will not be personally liable for loss of use when the damage waiver is purchased.
-Full contract coverage (including diminished value). The damage waiver matches the liability you are assuming in the rental contract.  There is no question whether there is coverage or not (unless of course it is excluded in the contract i.e. racing or letting someone not on the agreement drive the car).
-Time.  If you purchase the waiver, you basically drop off the vehicle (or tow in) in its current state.  You tell them you purchased the waiver and walk away to catch your flight (OK maybe not that easily, but better than the alternative).  If you did not purchase the waiver and are relying on your own insurance policy, you are going to get held up getting estimates, getting the adjustor involved, and could potentially have a pretty large reserve set against your credit card if you leave without fixing the damage.

With that said, it may be worth the added cost to purchase the insurance when renting a car.  At $140 (or more) a week to purchase “their” insurance.  It’s still a lot less than footing the bill for thousands of dollars in the event that something happens.  Plus, the peace of mind it gives you during the rental period may make it worth the price.