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Does Your Personal Auto Policy Cover Damage to Rental Cars?

Posted by Desiree Baughman on Jan 26, 2012

Many are guilty of this: you’re at the counter of a rental car agency, the customer service representative goes over the contract quickly, asking if you’d like to purchase additional insurance. You quickly rationalize why you don’t need it, and check the box the agent has asked you to, which affirms you’ve chosen to skip coverage.

But here are questions you should ask. If you have an accident, does your personal auto insurance pay for any losses or expenses? If you’re renting the car for business purposes, and your employer is paying for it, would they be responsible for damages?

What Are You Liable For When Renting a Car?

Contrary to popular belief, regardless of whether you’ve rented a car for business or pleasure, you may have just signed your name to a risk your personal auto policy may not cover. When renting a car, there are a few main liability issues you’re facing:

*If you practice negligent driving, injure someone or cause damage to any property, you’re liable for it. For example—you run a stop sign and someone t-bones you. You didn’t have the right of way, you failed to stop, and now another vehicle is stuck in the side of the rental car. You’re responsible for the damage to their vehicle, and for the medical expenses of anyone injured as a result.

*You’re responsible for damages to the rental car. When you ran that stop sign, you’re not only liable for the other person’s property damage and any medical expenses, you’re liable for the costs of repairing the rental car. That’s if you’re lucky—if the rental is totaled, you’re responsible for replacing it.

*You’re also responsible for damages you DIDN’T cause. Consider another scenario: You’re at a restuarant and return to your wheels to find that someone’s backed into the car, fled the scene, and left a lot of damage. You agreed to pay for that damage when you signed your rental agreement.  Avis communicates this in several ways, including on their website, which says, “any and all loss of or damage to the car resulting from any cause” is the renter’s responsibility.

*Not only do you have to pay for any damages to the rental car, you may have to pay for damage the rental company suffers as a result. So if the rental car company is unable to rent out the damaged vehicle for 14 days while it’s being repaired, you could have to cover their lost revenue. Luckily, by law, the company can only charge you if they don’t have any other vehicles to rent out while the damage is  repaired. [How often does this happen?]

Unfortunately, whether you waived coverage or not, you’re liable for ANY damage done to the vehicle. Whether it’s damage from hail, vandalism, theft, or any other peril out of your control, you’re responsible for paying for repairs, or at worst, the entire vehicle.

 Find Out What Your Personal Auto Policy Covers

Fortunately though, there’s a difference in being liable for something and how you pay for something. Your personal car insurance policy may pay for damages up to your policy limit. Most personal auto policies provide coverage if you have to comprehensive and collision coverage on at least one of your policy’s cars.

Read your policy or ask your agent to see what it says about extending coverage to rental cars. Look twice when you see the words ”rental cars.“ The policy could be referring to an option you selected,  which states your policy will pay for a rental car IF you’re involved in an accident. This elective coverage commonly has a limit of $600 to $900 per accident or a daily amount that the company would pay toward a rental. It’s usually referred to as loss of use, but has nothing to do with whether your policy will pay for damage to a rental.

Call your car insurance company and ask them what your policy says. Ask your agent if there are any state laws or regulations regarding rentals, personal auto insurance, and coverage. For example, Minnesota has a state law requiring that all auto policies sold cover 100% of damages done to a rented vehicle from the U.S. or Canada.

Usually, you’ll find a personal auto policy will cover claims from the previous scenarios, up to your policy limits and sometimes with some other restrictions.

The Problems With Buying Insurance From Rental Car Companies

If you do decide to purchase insurance from the rental car company — often referred to as collision damage waiver or CDW — then you should be aware that it really doesn’t work like regular insurance.  Often, it can prove to be a poor use of money.

CDW costs a lot more than having comprehensive and collision coverage on your personal auto insurance. According to Bankrate.com, the average cost of CDW per day is anywhere from $10 to $25. On average, if you rented a car every day for a year, you’d pay approximately $6,387.59 for CDW. For that amount, you could have bought comprehensive and collision coverage for your personal policy for about $432 a year, the national annual average according to the Insurance Information Institute.

Another problem with CDW coverage? That $6,387.50 is only for coverage that “may” cover all of the costs if there’s damage done. According to Bankrate.com, most rental car contracts have a long list of exclusions, which are very basic, such as broken glass or damage from a flat tire. Additionally, rental agreements may have exclusions if unlisted drivers caused damage, or if you take the vehicle out of a defined geographic area.

A customer service representative from Hertz told me that even if you do decide to purchase CDW coverage, they don’t go into great detail explaining it. Due to exclusions, this could mean possibly thinking you’re 100% covered when you’re actually not.

“If they ask about it, we tell them the price, and briefly provide an overview of what the coverage is. But we don’t go over everything about the coverage at the rental counter,” the Hertz rep said.

They don’t provide details about the implications of NOT buying the coverage when renting either.

“Once they buy it, we give them the agreement information, which explains the whole coverage, and they’re encouraged to read the whole contract before signing. Not all customers do that though, and usually seem more worried about price, time, and mileage limits,” the rep added.

Deciding On the Best Coverage

If you plan on renting regularly, add comprehensive and collision coverage to your car — if it means a rental’s damage would be covered. Even if you rent a car occasionally, it’s worth doing whatever you can to make sure possible damages are covered. There are a couple of ways to do this:

*Buy CDW coverage even if your personal auto policy extends to a rental. It could potentially keep you from experiencing an increase in rates if an accident or damage did occur. If your insurance policy pays a claim, you end up absorbing those costs via higher premiums — unless the accident or damages were caused by another driver. [Combining CDW and your personal car insurance policy should provide coverage for any eventuality – if you are sure your policy provides coverage for rental damages.]

*If you plan on renting a car, ask your insurer to add coverage for the car. Although this is done very rarely — and even some agents don’t know they can do this — you can sometimes get coverage for the rental. If you provide information on the car, the name of the rental company, and how long you’ll be renting it, you can request coverage for the vehicle. It may take a few phone calls and research, but it is possible to do this, though not all insurance companies offer?. It may not be very expensive either, especially if short term.

*If you carry an umbrella policy, this may cover you 100%. Most umbrella policies state that the policy will pay for any damage to any rental car. Of course, confirm this with your insurer.

*Make sure the rental car company doesn’t ask you to actually INSURE the vehicle. Insuring the car is quite different than assuming responsibility. If they want you to insure the car, an umbrella policy wouldn’t provide coverage. You’d have to purchase CDW or get insurance for the rental car specifically under your auto policy.

*Check out insurance coverage from a credit card. Many credit cards say if you pay for the rental with the card, they’ll provide coverage. However, you should play it safe and ask for a copy of the coverage details. Some will only pay for damage once you prove your personal policy won’t, while others have extensive exclusions, such as if you get a ticket for an accident that caused damage. You’ll want to make sure it pays before any other coverage will, and if it does that, it may be worth getting the card’s coverage and declining CDW.

***

Turns out, renting a car isn’t as easy as it may have seemed. All one needs to remember though is that if you’ll insure any other vehicle you drive, it only makes sense to  insure EVERY car you drive—especially if it’s not yours and you’ve signed a contract agreeing to pay for all damages.

-Desiree Baughman, InsuranceQuotes.org