Rental Cars and Insurance

| June 25, 2021
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As vacations are being resurrected and Americans are taking to the road – even though gas prices are soaring, they are asking about insurance and rental cars; they want to know if their car insurance will extend to rental cars.  While this may vary state-by-state and from insurance company-to-insurance company, here is the gist of how most companies will handle rental cars and insurance if you have a personal auto insurance policy that is not restricted to specific cars and drivers.  We are in California and address this question as such, so always check with your agent if you are reading this in another state.   

If you have a mainstream insurance company, the operation of a rental car (private passenger type) is covered by your auto insurance policy; the coverage follows your insured car, typically.  So, you are covered for the same liability limits (if you hit someone and injure them and/or damage their car), and for the same collision damage protection that you have on your policy, when operating a rental car.  The collision coverage under your policy is subject to your policy’s deductible.  And, if you do not have liability insurance or if you do not have collision coverage, then obviously there is no coverage to transfer over to the operation of the rental car.   Here are some thoughts:

  • The liability insurance limits that you get from the car rental agency are usually $100,000/$300,000 for bodily injury to others.  Your limits, if they are lower, may or may not be acceptable to the rental company.   
  • If you purchase the rental agency’s physical damage coverage, there is no deductible on the damage to the car, as the damage to the rental car is fully covered by the rental car company’s insurance.  This is the ultimate safe move, as well as the only move for people who don’t have any collision coverage at all.
  • Certain credit cards – one of which you will likely have – will cover your policy’s collision deductible if you use that specific credit card to rent the car.  If you elect to use that type of credit card, you don’t necessarily need the rental agency’s insurance just to get the deductible waived. 
  • Be aware that your credit card protection may have a maximum coverage limit as respects the deductible protection; when you call the credit card company to determine if they offer the collision deductible waiver benefit, you also want to ask them if there is a maximum they will pay toward your deductible.  

The rental car company receives income by renting its cars - obviously.  If you wreck the rental car, the company can't rent it to anybody else until it's fixed or replaced.  In theory, if not in fact, the rental company is losing money when its car is not rented.  So, if you damage the car and the rental car company is repairing the car, the rental company will charge you for that "loss of use" – the income it would have received if the vehicle was being rented to someone else.  Your auto insurance collision coverage does not extend to loss of use.

Here are more helpful hints:

  • The rental car company’s physical damage (collision) coverage not only includes damage to the car but as well for the loss of the use of the car.  So, for short rental runs, we generally recommend – for this reason alone – that you pick up loss of use protection by purchasing the rental agency’s physical damage insurance. Again, your policy will not pay for the loss of use.
  • Certain credit cards will address this loss of use; you need to check with your specific credit card carrier to see if you have this protection or if you can enroll in it. 
  • You will want to address this lost use of the rental car exposure, one way or the other; I have a good friend who was charged, by his rental car company, for small “parking dents”.  These dents came from other people opening their car doors, denting his rental car up and down the car’s  panels.  His credit card company paid for the damage AND the loss of use.  

So, you have basic the collision and liability protection while operating a rental vehicle (in the U.S. only, by the way) as long as your insured car has these coverages currently in force.   And, here is a recap:

  1. If you don’t have collision coverage on your car, then you must take the physical damage coverage offered by the rental agency.
  2. If you just want to walk away from the car regardless of the damage to it, then purchase the physical damage coverage from the rental agency.
  3. Be aware that you may – and likely will – be charged for the loss of use of a rental car if it is damaged and has to be fixed.   The rental agency’s insurance will pay for this, but your auto insurance policy will not.
  4. If you want to save by not paying for the rental agency’s insurance and let your own insurance pay for damages, we highly recommend that you contact your credit card company and enroll in the collision deductible waiver and loss of use charges programs.

I hope this clarifies the situation.  If not, please let me know; we’ll do our best to answer your questions.

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