Should You Buy Rental Car Insurance?

Customers often ask if they should buy rental car insurance even if they already have a personal automobile or a business automobile insurance policy and the answer depends on your specific situation as outlined below.
 
Personal Automobile Policy

While it is true that your personal automobile policy usually includes liability coverage for temporary and rental cars, you may not be aware that your personal automobile policy often excludes coverage for the following:

1. Loss of Use - the loss of income that the rental company charges you while the car is out of service.
2. Diminution of Value - the difference between the car’s value undamaged versus damaged.
3. Administrative Fees - these include fees for dealing with the administration of the claim, towing and storage of the vehicle.

Additionally, in order for your personal automobile insurance policy to pay for any loss under comprehensive or collision coverage these coverages must be provided on the personal automobile policy.
 
Business Automobile Policy

Most business automobile insurance companies are willing to include coverage for hired and non-owned automobiles. However, a problem can arise when an employee rents the vehicle, versus the company (employer).  This problem can be avoided by adding the employer’s name on the rental contract and setting up a corporate account with the rental car company. Employers should also review their business automobile policies to determine if coverage exists for the above named exceptions.  You should also ensure that hired and non-owned coverage is provided for liability, comprehensive and collision with an appropriate deductible.  While some insurance companies are beginning to offer coverage for the three loss exposures mentioned above most companies forms do not currently provide this coverage.  
 
Credit Cards

Several credit cards do offer limited coverage for rental cars, however, they often require the driver to opt into the coverage, have low limits, and exclude charges for loss of use, administrative fees and diminution of value. Always be sure to read your credit card agreement and the specific coverage provided.
 
Rental Car Insurance (Damage Waiver)

First, let us note that the Rental Car Insurance is not actually an insurance policy. Instead, it is actually a collision damage waiver - where you purchase a waiver to transfer the cost of any damage to the rental car company.  There are four advantages to purchasing the damage waiver from the rental car insurance:

1. No hassle - if you purchase the damage waiver, and have an accident or loss, the claim and damage should be covered by the rental car company. You turn in the car and walk away.
2. Damage may not appear on your loss history - if you damage the vehicle, but are not in an accident and do not damage any other property, the claim and loss should not appear on your insurance record. Correspondingly, a claim or loss against your personal or business automobile policy will likely reflect on your loss history.
3. Charges to your credit card - in the event of a loss without the damage waiver, the rental car company usually has the right to charge your credit card for the loss - potentially maxing out your limit.
4. Foreign rental - when you rent a car in a foreign country, there may be additional considerations not contemplated by your current policy as well as legal and regulatory issues.

There are also several disadvantages to purchasing the collision damage waiver

1. Cost - purchasing the collision damage waiver is very expensive, often times costing as much as three times what an insurance company would charge for a large commercial truck.
2. Probability - depending on your individual risk characteristics the probability of incurring non covered loss expenses may be relatively low.
    

Conclusion

While the fees charged by a rental car company can add $20-50 more per day, it is often easier than dealing with the problems and additional assumed expenses in the event of a serious accident and / or loss. However, if you do your homework by talking with your insurance agent or broker, credit card company, and / or your employer, you should be able to adopt a solution that works for you - both in context of cost and risk.