OK, so you are all set for vacation. Sunblock? Check. Tacky Hawaiian T-shirt? Check. Roadmap to take you to see the largest lint ball in the Midwest? Check. Permissive user confirmation? Che… Huh?
One of the most common questions we get is: “Does my insurance cover a rental car?” The quick answer is “Yes… Mostly…” But as you probably suspect, it’s that “mostly” part that will get you into trouble. The vast majority of the time, the coverage on your typical California auto insurance policy will extend to a rental car rented for pleasure use as long as it is being operated by an insured under your policy and (this is important part) that person is listed as a driver on the rental contract. You see, while driving any car not owned by you, coverage requires that the vehicle is being operated with permission of the owner of the vehicle. In this case, the car is owned by the rental car company and permission is only granted to those listed as a driver on the rental contract.
Now what about coverages? What coverages on your policy extend to the rental car? The answer is all of them. However, there are a couple of gaps in coverage: ‘Loss of use’ and “diminished value”. You see, if something happens to the rental car, from a scratch to the bumper to the total theft of the vehicle, the rental car company may look to you to reimburse them for the amount they could have rented that car for while it is in the shop or missing. For totaled vehicles or extensive damage, this can really add up. See your typical auto policy does not anticipate, nor provide for, paying ‘loss of use’ to you when your vehicle goes down due to a covered loss. Additionally, rental car companies have been pursuing ‘diminished value’ claims when a vehicle is involved in a loss. The theory is that a vehicle that has been in a wreck or sustained another type of claim loses some resale value. Again, this is something that your policy typically does not cover for your vehicle and therefore will not cover for a rental car.
Also, keep in mind that only the coverages you carry on your policy will extend, meaning that if you don’t have comprehensive and collision coverages on your regular car, you won’t have them on your rental car either so you will be required to carry the physical damage coverages offered by the rental car company.
While we are on the subject, let’s look at the most common coverages offered by the rental car companies: Liability and physical damage. In almost all cases, there is no need to buy the liability coverage as your policy will extend that coverage. The physical damage coverage usually comes in two levels of protection, limited or full. The difference is that the limited coverage is just that, limited to a certain amount, say $3,500 and will pay those things that your insurance might not, such as your deductible and the ‘loss of use’ mentioned above. The full damage waiver will cover all the damage and let you ‘walk away’ from any damages caused.
Are the damage waiver coverages worth it? Well, from a dollar/day standpoint, no, they are overpriced compared to the physical damage coverages on your typical auto insurance policy. However, two factors might well make them worth it to you: 1) Having them greatly reduces the hassles and expense should something happen to the rental car; and 2) Since rental cars are often rented by people ‘out of their element’ in an unfamiliar area and in an unfamiliar vehicle, the odds that something will happen in a rental car would seem to be greater.
Many people I know, including some insurance professionals, always buy the rental car coverages simply for the peace of mind and convenience should something happen. After all, who wants to worry about insurance when one should be focused on enjoying a giant Iowan lint ball with their family? As with any insurance transaction, it all boils down to your personal choice as to how much risk you are willing to take and how much you are willing to pay for the extra peace of mind provided by the additional protection.
You may have noticed that I did not address coverage provided by credit cards when you rent a car. This is because there are so many cards out there providing so many different levels of protection that to address them here in a limited fashion would be woefully inadequate. This is certainly not to suggest that those credit card benefits are without merit. From simply a value standpoint, most of them are free and you can’t beat free. My main concern with touting these coverages is that they vary widely and would require additional scrutiny by an expert such as your insurance agent to determine if it makes sense for you to rely on them. My suggestion is to contact the credit card you plan to use and get a copy of their protection. Don’t just rely on the verbal description of coverages given to you by some phone representative. Once you have a copy, you can give that to your agent for an interpretation so that you will know what is covered and what gaps in protection exist.
There is one credit card rental car coverage benefit that I think is definitely worth noting, however. American Express now offers their Premium Rental Car Protection on many of their cards. This is a feature that you can add to your card at no cost; however you are charged a fee each time you rent a car. Depending on the product and state, this charge ranges from about $15 to $25 per rental. Note that I said per rental, NOT per day. The one charge will provide coverage on the rental car for the entire time you rent it, up to 42 days for any single rental. In California the coverage costs $18 per rental and will cover you up to that 42 day limit. Considering all of the different coverage included: Physical damage up to $100,000 (including loss of use but not diminished value), AD&D, medical payments and limited coverage for personal belongings. This can prove to be an exceptional value, particularly on longer rental periods. One additional thing that is appealing about this option is that the physical damage coverage is primary to all other coverage, meaning you likely would not have to involve your insurance company at all which means you would not have to pay your deductible. Personally, I carry this on my Amex and would recommend it to anyone looking to rent a car.
It is important to note that the advice here is applicable to domestic rentals. When renting in a different country, all bets are off. Your regular car insurance will not afford coverage in many, if not most, foreign countries. It should be noted that the majority of US auto insurance policies will cover you throughout Canada and within a set distance into Mexico. Because insurance laws, even laws in general, differ greatly in other nations, it is strongly recommended that you buy the insurance offered by the rental car companies in other countries. In Mexico for example, driving without Mexican auto insurance can famously land you in the local jail next to a drunken spring breaker, even though your regular auto policy may cover the accident. In all foreign lands, better safe than sorry, to be sure.
Another sticking point could be if you rent a car for business purposes because some policies will specifically exclude non-owned vehicles used for business. Also, most insurance policies have limits on the type of vehicle rented and may not extend coverage to rented motorhomes, trailers as well as trucks/vans designed for commercial purposes or over a certain weight. As always though, your insurance agent should be good source of information for your particular situation. (If you don’t have an agent, well you can always hope that the call center “agent” knows what he’s talking about, although I wouldn’t bet on it. Many of them have been on the job less than 1-year.)
One thing for sure, before you rent a car for business or simply to go on a road trip to all the great alligator farms of the southeast, check with your agent, your credit card company and your rental car company. Know what options you have for protecting yourself so that when you get to the rental car counter, you already know what they offer and what coverage you already have and what supplemental coverage you want to buy, if any. That way, come claim time, you know there will be no surprises and you can relax on your vacation leaving you to ponder the inevitable question: “Why on earth would anyone stick their head in an alligator’s mouth?”