Rental Car Insurance – Do you have it?

Does your auto insurance policy cover the cars you rent while on business or vacation?  Really?  The fact is, for many policies the correct answer is “partially”, and the part they don’t cover can cost you plenty!

In 2007, the National Association of Insurance Commissioners conducted a survey and found that 42% of consumers were “either thoroughly confused or had only a rough idea about insurance” pertaining to rental cars, and a significant number bought the extra-cost insurance from the rental car company just to be sure.  If you call your insurance agent and ask if a car you rent is covered, you are very likely to get a casual answer like, “Sure, it’s covered just like your own car”.  While this is probably true, in most cases it is simply not the whole story. 

Most insurance companies do extend the Comprehensive and Collision coverage you have on a full coverage automobile to a car you may rent.  If you suffer damage to the car, your policy will normally cover the damage just as it would to your own car subject, of course, to your deductible.  So far, so good.  But you soon learn that damage to a rental car involves costs that do not occur when your own car is in an accident.

Most rental car companies, following an accident, will charge you one or more of the following types of charges: Administration Fees, Loss of Use and Diminution of Value.  Some of these charges may be regulated by the state in which you rent the car, but don’t count on it.

An Administration Fee is often charged just for processing the paperwork for the claim.  It may be a set amount like $100 or it might be calculated as a percentage of the damage, say 5%.

Loss of Use is based upon the theory that if the car had not been in the body shop being fixed, the rental car company could have rented it to someone else.  This theory often applies even if the particular rental car location has 20 other similar cars sitting idle on the lot!  Depending on the extent of damage to your rental car, this can add up to a lot since it is charged for every day the car is out of service.

Finally, Diminution of Value is the loss in the resale value of the car due to the damage even after the repair.  Often, major damage must be disclosed by state laws and, even if not, services like CarFax can often discover when vehicles have been in accidents and this can lower their value.  The rental car companies sometimes calculate this as a percentage of the total amount of damage.

So, the question is, “Does your auto insurance company cover these charges?”  You can either read your policy (horrors!) or call your agent to find out.  I have a policy sitting in front of me right now from a company  that does cover a rental car for Liability, Comprehensive and Collision (provided, of course, that you have a vehicle similarly insured on the policy).  However, you read on to discover that it will only pay up to $1,000 for damage you may be legally obligated to pay under a rental car contract (so that’s your limit for Loss of Use and Administration Fees) but another section absolutely excludes coverage for Diminution of Value. 

Another policy on my desk from a different insurance company also covers damage to rental cars as well.  With regard to Loss of Use and Administration Fees however, it will only pay them up to $25 per day to a maximum of $750.  And, once again, coverage for Diminution of Value is absolutely excluded.

There was a good article in the Denver Post last year about this very subject that also addressed how some credit cards may or may not help pay for some of these charges.  Additionally, in 2007, there was an article in USA Today about a business traveler who routinely declines the additional cost insurance coverage from rental car companies and explains his reasons for doing so.  If you are a person who occasionally rents cars for either business or pleasure, I suggest you read both articles and don’t skip the responses to those articles listed below them — they include some horror stories about rental car damage.

It is not unusual to hear someone at a rental car counter, in a hurry and with a line of people behind them, utter something like “I’m pretty sure my auto insurance covers this” and with a quick initial decline the Collision Damage Waiver (CDR).  If it is truly an informed decision and you know what you are doing, fine.  But you’d better be sure before you end up with several thousand dollars in bills from a rental car company as an unwanted memory from your last vacation.