Rental Car Insurance, Should You Bother?
If you rent a car, whether it is for business or pleasure, you may unknowingly expose yourself to risks that are not covered by your personal auto insurance policy. If you then ever need to make a claim on your auto policy, this may result in you not receiving full compensation for your loss or having your claim rejected altogether.
It is therefore in your best interest to understand the risks you face when driving a rental vehicle, and to ensure that your policy provides adequate coverage against those risks. A good place to start to help you determine this is being aware of the main liabilities that you face.
The four main sources of liability that you face when renting an automobile are:
1) Other Drivers
You are directly liable for any injuries or damage that you cause to others while you are in your rented car. This liability also extends to other people who you allow to drive the vehicle.
2) Your Vehicle
If you damage your rental car in any way then you will be responsible for the cost of the repairs.
3) Car Hire Agency
You will have to compensate the rental car company for any loss of revenue they suffer as a result of damage to their automobile which prevents them from renting it out to another customer.
4) Accidental Damage
Whilst a vehicle is in your possession, you are responsible for any and all damages it suffers. This includes accidental damage that was not your fault.
As you can see from the liabilities listed above, you take quite a risk renting an automobile without car hire insurance.
Perhaps the biggest liability you face is being responsible for all damages caused to the vehicle regardless of whose fault it was. This even includes damage as a result of severe weather such as wind or hail.
So even though you may be a good driver and confident that you will look after your automobile, driving a rental car without adequate insurance possess a very serious risk and one that most could do without.
However, should you have adequate rental car insurance then you will be able to go about your business with much greater peace of mind and not having to constantly worry about the safety of your hire car.
Can I Use My Personal Auto Insurance For Rented Cars?
Providing your personal car insurance policy covers the four main liabilities listed above, then you should be sufficiently covered not to need additional insurance.
However, since personal car insurance policies vary, it is worth double checking your policy to see exactly what sort of protection it gives you and what it does not.
In general, most personal auto insurance policies offer the following levels of coverage:
1) Injuries & Property Damage
Any injuries or property damage that you cause as a driver should be covered up to your liability policy limit.
2) Damage To The Car You Hired
You will only be covered for damage that you cause to your rental vehicle if you have collision and comprehensive car insurance coverage on at least one of the vehicles in your policy. In some cases, you may need to purchase additional collision-damage waiver coverage from the rental company.
For damages to the rental vehicle that you did not cause, you will be responsible for paying unless you have collision and comprehensive car insurance coverage on at least one of the vehicles in your policy. Make sure that you double-check this with your insurance provider as policies can vary.
Even if you do have collision and comprehensive coverage on your existing policy, you may still want to take out collision-damage waiver coverage from the rental company as if you have an accident in your rental vehicle then you risk paying higher premiums on your existing personal auto policy when you make a claim.
So even though you end up paying for extra coverage, it could ultimately save you money in the long run by guarding against rising premium costs which you will then have to pay for many years to come.
3) Rental Company Lost Income
If you return a damaged vehicle and the rental company is unable to use that vehicle for a period of time, then you will be responsible for paying any lost revenue as a result of your vehicle being out of service.
If you have loss-of-use coverage in your personal car insurance policy, then you will be covered up to around $50 per day depending on your limit. Be warned however, that most insurance policies will not pay for a rental company’s loss of use charges, in which case, it can be beneficial to get insured with the rental company.
4) Keeping Your Auto Insured
Unless your car insurance policy provides you with full protection against the main liabilities of operating a rental car, it is advisable to purchase the collision-damage waiver from the rental agency. This is their version of collision and comprehensive coverage.
However, the collision-damage waiver coverage supplied by rental car companies comes with two problems:
i) Cost
Collision-damage waiver coverage is usually charged at around $10 per day, which works out to $3,650 per year.
If you compare this to the $500 on average a year it costs for collision and comprehensive insurance coverage, then you can see just how expensive taking out such car insurance can be.
Although as was previously mentioned, if you are only hiring a car for a short period of time, then having to pay $10 extra a day is much better than having to pay years of higher premiums on your personal auto policy in the event that your automobile is damaged in any way.
ii) Restrictions
Collision-damage waiver coverage comes with all sorts of restrictions that one would not normally tolerate in their personal car insurance policy.
For example, unlisted drivers are often excluded from the coverage, and the coverage does not apply if you drive outside a permitted area, if you were driving carelessly or if you were drinking while driving.
Insuring Yourself Against Additional Risks
If your personal auto insurance policy provides you with full coverage when driving a rental vehicle, you may still find taking out collision-damage waiver coverage advantageous if:
1) You Want To Protect Your Auto Insurance Rates
If you have an accident or damage a rental car and then file a claim on your personal auto insurance policy, you run the risk of increasing your insurance premium rates for the next 2-3 years, sometimes by as much as 25%.
You won’t however, see an increase in your premiums if you file a claim under coverage that you purchased from the rental agency.
2) You Want To Rent A Car For Business
An automobile that you rent for business can be insured with coverage purchased from the rental agency and then later claimed back as a business expense. This can help to protect your own personal car insurance if you needed to make a claim.
3) You Want To Insure Small Personal Items
If you are travelling with your spouse and children for a vacation, then you are likely to have lots of small valuable items in your vehicle.
For example, you may have a laptop, several cell phones, Mp3 players, digital cameras and a portable video game system. All of these items can add up to a significant amount, and if they are not insured, then you risk facing a substantial financial loss if they are damaged or stolen during your trip.
If you have homeowners or renters insurance, then your personal effects coverage may be enough to provide you with sufficient coverage. However, many homeowners have increased their deductible limits to offset rising insurance costs, sometimes as high as $1000 or $2500.
As a result, you will only receive compensation for damaged or stolen items past your deductible limit, which, depending on the value of your personal items, may result in you receiving no compensation at all for your loss.
Considering the fact that personal effects coverage offered by rental car companies is only around $2 per day, taking out this extra coverage is something that is definitely worth considering.
Should You Purchase Rental Car Insurance?
Getting Insured With Your Credit Card
Some credit card companies promise you rental car insurance if you use your credit card to pay for the rental. However, be very careful when doing anything like this as different credit cards can offer very different policies, some of which are extremely restrictive or only provide a low dollar limit coverage.
In general, most credit card rental insurance policies will not pay for damage to your rental vehicle unless you can prove to them in writing that your personal car insurance policy does not provide such coverage.
What this means is that until you can provide such proof, the entire cost of the damage to the rental will be charged to your credit card.
Most insurance advisers recommend not to rely on credit card car insurance unless it fulfills both of the following:
1) Provides Primary Coverage
Primary coverage means that the insurance policy is to pay first and ignore your existing personal auto insurance coverage.
2) No Exclusions
Check carefully to see if there are any exclusions which could make a claim difficult or impossible to receive.
If you do find exclusions which leave you exposed to uninsured risk, considering upgrading that policy to close those coverage gaps or getting insured under another policy.
Staying Financially Safe On The Road
If your personal car insurance policy offers you full coverage, or your credit card offers you full car hire insurance coverage, then you can quite safely drive a rental vehicle without having to worry about what happens to it.
If however, you do not have such coverage, or you are concerned about increasing the premium rates you pay on your existing personal auto policy, then taking out collision-damage waiver coverage from the car hire company would be your best option.
Although this will result in you incurring an additional expense, if anything should happen to your rental, then this small added expense will be more than worth it.
