Trying to find the answer to that nagging question: “I’m standing at the rental car counter and they just asked me if I want the insurance coverage for the rental car, do I need it?”
Breaking out in a sweat: yes, I need it… no, I already have insurance: well, maybe I should think about it.
WHAT DO I DO?
Example. You’ve just started your vacation. You’ve arrived at your destination, collected your luggage, and are in the process of renting a car. You’ve given the person behind the counter your driver’s license and credit card, and now you’re being asked if you want to buy “coverage” from the rental car company.
Do you need it?
The best way to be prepared is to know the answer to this question before you leave on your vacation.
So we’ll start with why you might NOT buy insurance from a rental car company?
To start, the person behind the counter is (usually) not a licensed insurance professional. He or she is not familiar with insurance laws and whether your own personal auto policy covers you when you rent a vehicle (in most circumstances, it does).
Some rental car company personnel may say you are required to buy the coverage (not true) or you will be personally liable for any damage to the car while you’re renting it (most likely, not true).
This Coverage Is Incredibly Expensive
Fact. While it’s true you could be making a costly mistake if you need the rental car coverage and don’t buy it, you’re also making a costly mistake if you buy it when you don’t need it.
Rental car insurance is incredibly expensive. On a daily basis, which is how it is sold, the rental car coverage can cost 10 to 20 times more than your personal auto policy. If you buy all the coverages offered by the rental car companies, you could easily double the daily cost of your rental vehicle.
So who should not buy the rental car coverage?
If you have insurance for your own cars, including collision and comprehensive coverages, and you’re not concerned about paying for the loss of income the rental car company would experience (see below for a full explanation) if you damage the vehicle, then you don’t need the rental car insurance – provided you are not renting the vehicle for business purposes.
If you’re on vacation, no problem. Just say no. If you’re on vacation but planning to do some business, you’re probably OK. But you should talk to your insurance agent if you mix business and pleasure on the trips where you rent cars.
Tip. One thing to keep in mind: Your collision and comprehensive coverages on your personal auto policy have deductibles (the amount you must pay before the insurance kicks in). Those deductibles apply to damage to rental cars as well.
What if You Don’t Carry Collision Coverage?
So what happens if you don’t carry collision and comprehensive coverages on your own cars? Many people don’t, particularly if they have vehicles that are at least 10 years old.
Note. If you don’t have collision and comprehensive, your personal auto policy won’t cover damages to the rental car if it’s in an accident, stolen, vandalized, collides with an animal or burns.
So what should you do?
You can risk it, not buy the rental car company’s coverage, and hope you don’t have an accident or encounter anything that damages the vehicle. You’ll save money, but it might not do much for your peace of mind, particularly if you’re driving in a strange city or area.
Tip. If you’re averse to risk, you probably should buy the coverage offered by the rental car company. Some rental car companies offer options with their coverage. Some come with deductibles, like regular collision and comprehensive coverages, while others provide first-dollar coverage.
Obviously, first-dollar coverage comes at a higher price.
And some options limit the coverage. In other words, after a certain amount of damage to the vehicle, say $5,000, you would be on the hook.
What If You Damage Another Vehicle when You’re Renting a Car?
What about damage or injuries you cause to other vehicles and people while you’re driving the rental car? If your personal auto policy includes liability insurance (most states require some level of such coverage), your policy will pay for any damage or injuries you cause to other cars or people – up to the limits of the policy, of course.
Note. If you’re comfortable with the amount of liability coverage you have for your own cars, you don’t need to buy additional liability insurance for vehicles you rent.
If you don’t have liability coverage – if you don’t have a car, you’re probably not going to carry auto insurance – (although you really should consider the benefits of a named non-owned auto policy) you may need to purchase the rental car insurance.
Most states require rental car companies to provide some liability coverage to you at no charge. The limit of the ‘free’ liability coverage is equal to the state’s minimum liability limits.
Are these liability limits enough?
Probably not, and certainly not if you cause a serious accident.
For example, the minimum liability limit requirements in Ohio are $25,000 for injuries to any one person, $50,000 for injuries to all persons, and $25,000 for damage to the vehicle(s) you hit. That’s not much at all.
Tip. If you don’t have liability coverage, you should strongly consider purchasing the rental car company’s liability coverage, which is relatively inexpensive depending on the state and level of coverage you choose.
What about this ‘Loss of Income’ to the rental car company?
There’s one type of claim payment where you could be on the hook, regardless of whether you have your own auto insurance. The rental car companies have different terms for how they define this type of claim, from ‘loss of income’ to ‘loss damage,’ but the concept is the same.
Example. You have your own auto insurance with comprehensive and collision coverage so you skip the insurance offered by the rental car company. You’re involved in an accident where the rental car is totaled.
Since you have insurance, including comprehensive coverage, your insurance pays to replace the car (all you pay is your deductible).
All is good, right?
In the best case scenario, it’s going to take several days for the rental car company to get its replacement vehicle for the one you totaled. May not seem like a big deal, but since rental car companies earn their income based on the vehicles being rented, when they’re down a vehicle (the one you totaled), they’re losing income.
And since your auto insurance company is only responsible for replacing or repairing the damaged vehicle, they’re not going to pay the rental car company for its loss of income.
That bill is going to land in your lap.
So what’s the solution?
Most car rental companies now provide the option of just including coverage for this type of claim. It’s often referred to as the “Loss Damage Waiver’ (LDW), and usually relieves you of the responsibility of paying for the rental car company’s loss of income.
If you’ve made it this far, you likely realize there’s no simple answer to the question of whether to purchase the rental car insurance. However, here’s a quick cheat sheet:
- If you don’t have any auto insurance, you need to seriously consider purchasing it from the rental car company
- If you have auto insurance, but you only have liability coverage for the vehicles on your policy, you should consider purchasing the physical damage coverage offered by the rental car company to pay for damages to the rental car in the event you’re involved in an accident
- If you have auto insurance with comprehensive and collision coverage on your vehicles, AND you’re risk adverse, look into options for purchasing just the ‘loss of income’ coverage in the event the rental car company losses income because of damage you caused to the vehicle
- If you have your own auto insurance with comprehensive and collision coverage, AND you consider yourself a bit of a risk taker, decline the insurance offered by the rental car company
Still have questions or concerns about whether you need to buy the coverages offered by rental car companies? Talk to your insurance agent. The rental car coverages can double your daily rate. That’s a lot to pay for something you don’t need.
If you’d like to learn more, contact one of our Licensed Advisors . We’re here to help.