NO is the only true answer to the question “am I protected when I rent a car or truck”  because nothing provides what you, the customer, really want. Unfortunately, there is no perfect way or answer as to how to handle the liability insurance or physical damage coverage for rental cars. Any approach that you take is costly or you are gambling and in some cases you pay the money up front, have an accident, and then find out you violated a rental provision that voided the coverage you bought and have an even bigger bill to pay. So, don’t take these decisions at the rental counter lightly. Realize that you have to make an important business or personal decision as to the risk you are willing to take and the ability you have to pay for the consequences.

Why is this aspect of your vacation or business trip so difficult to find a definitive solution?

  1. Every rental contract can be different as to what that particular company wants to hold you responsible for. These are very one sided contracts and can cause a lot of financial stress and emotional distress, if a loss occurs. The rental agencies emphasize “they are not providing insurance”, so they don’t fall under any state insurance department regulations.
  2. Some states have laws that limit or allow what provisions can be put in a rental agreement. The same rental company can have a different contract depending on which states they are operating in. Most American insurance companies will only provide coverage for the United States, its territories and possessions and Canada. You MUST buy local insurance in all other countries.
  3. Credit card companies tout the benefits they offer their customers including rental car coverage, but this protection is usually excess over any other available coverage. This is a last resort type of coverage and then they have their own limitations and exclusions.
  4. Even if you buy the coverage from the rental agency, you can void the coverage by certain actions of the renter or driver.
  5. The coverage under your personal or business auto policy won’t provide coverage for all of the damages that the rental agreement holds you responsible for.

SOLUTION 1

The renter can purchase all of the coverage under the rental agreement. You think that by purchasing the basic liability, plus the increased liability coverage of $1,000,000 and the damage waiver coverage on the car, you can just turn the keys in at the rental desk and walk away, in the event that you have a claim of any kind. An accident is more likely to happen in a strange city where you are busy looking for signs instead of watching traffic, so you decide to pay up front. The drawbacks are the high cost of this approach and even at this high cost you don’t get what you expect. First, the basic liability coverage is excess over any other coverage you may have. So you are going to have to turn the accident into your own company, anyway, before the basic rental liability will apply. The $1,000,000 limit, that you paid extra for, can be excess coverage, also. Some rental contracts will make this primary coverage when you buy the $1,000,000 limit, but NOT ALL, so you have to read the contract or confirm the coverage before you arrive. The collision damage waiver is good protection on the rental car itself. With this, you get first dollar coverage for any damage to the rental car, any loss of use charges, claim expenses, diminished value from the claim, or any salvage charges, but the renter or driver can easily void the coverage under the collision damage section of the rental agreement. The most common exclusions that void coverage are: 1) Driving while under the influence of any substance that is known to impair one’s driving ability. This can be drugs, alcohol (their policy doesn’t state legally intoxicated so a single drink could void coverage) or medication; 2) You let someone not listed on the rental agreement drive (this can be a valet at a restaurant or hotel as well as a companion); 3) Driving on unpaved roads; 4) You’re charged with reckless or careless driving. 5) You leave the keys in the car & it is stolen; 6) you leave the state without prior written permission. If an accident causes a serious injury, you can exhaust the liability limits provided by the rental agreement and still have to involve your personal or business auto policy.

SOLUTION 2

Rely on your own auto liability coverage and just purchase the damage waiver coverage from the rental agency. This is the option that I usually choose. Your legal liability for injury or damage to someone else because of an accident that you cause is covered by state law and the rental agreement doesn’t generally apply. Your personal or business insurance company deals with the other party just as if you were driving your regular vehicle. By purchasing the damage waiver, you don’t have to worry about any damage to the rental car, deductibles, loss of use, diminished value, salvage cost, or anything else the contract states as long as you didn’t do any thing to void the coverage, as stated above. The disadvantages are you can void the coverage that you just purchased. The cost still adds up if you have a long rental or if you do it often, and your personal or business auto rates will increase because of the liability claim they handle.

SOLUTION 3

Don’t purchase any rental car coverage from the rental agency and rely solely on your own auto policy. The is the least expensive option, but you are responsible for all damages to the vehicle and the rental agreement, that you signed, holds you responsible for certain other damages that your regular personal or business auto policy won’t cover. Typically, by signing the rental contract, you are agreeing to be responsible for: lost rental income while the car is repaired (even if it takes longer than it should); diminished value of the rental vehicle because of the accident; at their option, the difference between the salvage value of the vehicle and the value of the vehicle when you signed the agreement, if they decide not to repair it and sell it for salvage: or anything else they decide to add to the contract. Your personal or business policy won’t pay for diminished value. It will pay for a certain number of days of lost income( or a certain dollar value) while repairs are done, but the rental agency may be slow in getting it done and bill you for more lost time than the insurance company authorized. An example of the salvage situation is: you rent a $30,000 car, have a $7000 accident, the rental agency (at their option) decides not to put it back into service and sells the car for salvage value and gets $14,000. The rental agency gets the $14,000 salvage value plus the $7000 from the insurance company for a total of $21,000 and bills you for the $9000 difference to get the $30,000 original value. To make things even worse, you are still going to have to pay your normal deductible and your rates are going up because of the accident surcharge. This can happen for an accident that isn’t even your fault, but the other party doesn’t have insurance. The rental agency doesn’t care. They just want their money. As you can see, you are taking a big risk if you don’t buy the collision damage waiver protection and then you have to be careful to add all drivers and don’t void the coverage in some way.

Now for the disclaimer, this is a general discussion of most rental car contracts and typical coverage for most insurance carriers. Most business auto policies will have a limit of $25,000 or $50,000 coverage for rental vehicles, so be sure to check your limit. Most personal auto policies will exclude any trucks larger than a small pickup truck. In some cases you may have no option but to take the rental agency coverage. This article is intended to give you a better understanding of the risks involved in renting vehicles and, therefore, you can make a more informed decision as to the amount of risk you can handle. There can be other provisions, restrictions, limits, or exclusions in various rental agreements and insurance policies, but this just addresses some of the more common areas. Businesses that have a lot of rentals may want to set up a reserve fund to pay for any damage and fund it with the money they save by not purchasing the Damage Waiver on each rental. Businesses that have an account with a major rental agency can negotiate some concessions such as: all employees and spouses are covered drivers. Check with your rental agency and see how many of these responsibilities you can negotiate out of the standard rental agreement.