Due to rental car contracts, there is no black and white answer to whether you need rental car insurance or whether your own car insurance will cover you. The short answer is that we generally advise our clients to buy the rental car insurance.
Does My Car Insurance Policy Cover a Rental Car?
- As a general rule, your car insurance policy also insures a rental car if:
- You will be driving the rental car in the United States or Canada.
- Keep in mind that your car insurance only covers the drivers that are listed on your car insurance policy. So if you are traveling and sharing a rental car with a friend, make sure they check to see if their own car insurance policy covers them.
- You are renting a car for short-term use (usually, 28 days or less) only.
- You're getting a rental car for personal use. Your personal car insurance policy generally won't cover business use. If you use the rental car for business purposes, your loss may not be covered by your car insurance.
- You have the necessary coverage on your car insurance policy. This includes:
- Underinsured motorist
- Personal injury protection coverage
- Collision coverage
- If you dropped comprehensive and collision coverages on your car(s), you do not have coverage for damage to the rental car (such as broken windshield or collision loss).
- You are renting a private passenger automobile. Clients often ask if they need to buy insurance for moving vans. The answer is YES. Your auto liability insurance will extend, but there is no coverage for damage to the rented moving truck because it doesn't fit the description of “private passenger auto.”
All this sounds like your car insurance might work as rental car insurance, doesn't it? So why do we recommend that you spend vacation dollars on rental car insurance?
Because we don’t want your vacation spoiled by delayed travel or a surprise charge to your credit card due to “traps” in the rental car contract!
You have the option to purchase a “Loss Damage Waiver” (LDW) from the rental car company. If purchased, this waiver relieves you from financial liability for the loss of, or damage to, the rental car, parts, and accessories that come with it.
Purchasing an “LDW” is generally a good idea, because:
- If the car you rented gets damaged and needs repairs, the rental car company cannot rent it during the repair process, which can often exceed several weeks. The fine print in your rental agreement usually stipulates that you owe the rental company for loss of rental income during the repair. Your car insurance policy has limited coverage for these charges.
- If you don’t have collision and comprehensive coverage on your car insurance policy, or if you don’t want the rental car company to charge your credit card for the total cost of the repairs (which they will do – rather than wait for the settlement from your car insurance company) you should buy the “LDW.”
- If you don’t want to pay their various administrative or loss related expenses, such as towing, appraisal, claims adjustment, storage, etc. Some of these may not be covered by your own car insurance.
- If the car is damaged while in your possession, you can get penalized for the reduction of value of the rental car. If the car was worth $30,000 and now is only worth $27,000, you’re on the line for the $3,000 difference.
- If you have comprehensive and collision coverage on your car insurance policy, buying the “LDW” may sound like buying duplicate coverage. But if you buy it, you may not have to file a car insurance claim under your personal car insurance policy, you won’t have to pay the deductible, and you may not face a car insurance rate increase at your next renewal.
If you decide to buy the “LDW,” be sure to read the fine print. There are likely to be some exclusions:
- Drivers not listed on the contract
- Driving when intoxicated
- Driving off-road
- Or when driving certain stretches of road, such as the infamous road to Hana in Maui.
- Damages to motorcycles, mopeds, motor homes, etc.
Another common question is whether credit cards provide rental car insurance.
Our answer? Maybe.
Some of the premium credit cards (Gold and Platinum, etc.) do offer rental car insurance. Contracts vary from card to card, so call your credit card company to find out exactly what's covered. Some cards may only provide secondary or excess coverage, requiring you to file a claim with your own car insurance before the credit card coverage applies.
Our recommendation is not to rely on car insurance coverage through your credit card unless you’ve researched this issue thoroughly.
When you rent a vehicle, ask them for an advance copy of the rental agreement in order to determine your contractual obligations for damage. A few rental car companies post this on their website. Also, be sure to inspect the vehicle for damage, inside and out, before signing anything.
Finally, keep in mind that your personal car insurance policy will only extend protection in the United States and sometimes in Canada or Mexico, depending on the car insurance company and policy you've chosen. If you plan on renting a car in Europe, Asia, or South America, your car insurance policy will not extend, and is limited at best in the U.S. Territories. In that case, it is best to purchase maximum limits of liability, in addition to collision and comprehensive coverage, directly from the rental car company.
© 2017, PLC Insurance. The reader assumes all responsibilities for his/her own actions in regards to any items discussed in this report. Adherence to all applicable laws and regulations, federal, state and local, governing the use of any product or service described in this report in the US or any other jurisdiction is the sole responsibility of the reader. The publisher and author assume no responsibility or liability whatsoever on the behalf of the reader of these materials. The reader is encouraged to consult directly with his/her insurance professional.