Rental Cars and Your Auto Insurance Policy

Written by on 5/24/2011 6:12 PM . It has 5 Comments.

The first question that many clients ask us is this: "If I'm driving a rental car and have an accident where I hurt someone, am I covered?"  Generally speaking, if you are renting a car in the United States, in your name, for personal use, then the answer is: "Yes."

Consider John and Mary Smith, who have a personal auto policy that covers their 2006 Toyota Prius for liability, medical payments, uninsured motorists, collision and other-than-collision.  They fly to Maui for 2 weeks of fun in the sun.  They rent a car from any one of the myriad of car rental companies, and off they go.  On the way to the hotel, John runs a red light and hits another car.  John and Mary are unhurt, but the elderly driver of the other car must be taken to the hospital.  If that injured driver sues John over his injuries, John's personal auto policy will provide him with liability coverage and a defense.  End of story.

The grey area of coverage for rental cars pops up in the physical damage coverage.  The typical rental contract says if the renter does not purchase the collision damage waiver, the renter will pay the auto rental company for all loss or damage to the car, regardless of cause.  In addition to the direct damage to the car, the renter may also owe the auto rental company for loss of use, the diminished value of the vehicle, administrative fees and towing and storage charges – even if you are not at fault.

Although you might be able to pick up some physical damage coverage from your credit card company or your personal auto policy, we recommend that you purchase the collision damage waiver from the rental car company.

Yes, this is the most expensive option, however, it does give you the absolute best protection.  Let’s look at the key reasons to purchase this coverage:

  • The rental agreement may require immediate reimbursement for damages and it is not uncommon for the lessor to charge the insured's credit card.
  • The rental contract may hold you liable for various "administrative" or loss-related expenses, such as towing, appraisal, claims adjustment or  loss of use costs, which most likely are not covered under your personal auto policy.
  • Your personal auto policy will most certainly include a deductible in the range of $100-$500 or more. In addition, payment for damage to a rental car may result in a significant premium increase (if not non-renewal) via surcharges or loss of credits.

So, in conclusion, to have total peace of mind while you are on vacation, purchase the rental car coverage...then start enjoying your fun in the sun.

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