Rental Cars: Buy The Insurance?

This is one of our most common inquiries, but like with most questions in insurance, there is no simple answer. Renting a car on vacation can be one of the most confusing issues because of the exposures, rental contracts, and driving “territories.” The simplest answer is to buy the coverage. Not satisfied with that? Read on.

Let’s start with the easiest question first. Do I need to buy coverage if I travel outside the United States or Canada? The answer is ALWAYS yes. Automobile insurance policies in the United States have a territorial limitation that provides coverage ONLY in the US and Canada. Going to Australia? Buy the coverage. Going to Zambia? Buy the coverage. (Get it? A to Z. Who says insurance isn’t funny.)

Now, you may be asking, what do I mean by coverage? There are two types of coverage that you should always consider. The first is liability. This protects other people if you injure them and property if you damage it. Your car insurance MAY extend this coverage, but you may not want to use your car insurance, especially if you are traveling with another family or other people. Do you want to expose your car insurance to your friend’s accident? Probably not.

In addition to liability, there is the question of coverage for the rental car. Your car insurance MAY extend coverage to a rental, but ONLY if you have collision and other than collision coverage on your policy. These protect the car if it is damaged and you are responsible, or if you are involved in a hit and run. It would also pay if you broke a windshield or hit a deer.   If your rental gets backed into in a parking lot and the tail lense is broken and it costs $450 and you have a $500 deductible, you are paying for the loss and your deductible would apply to the rental. The coverage that the rental car agency will sell you is call Loss Damage Waiver, LDW, or Collision Damage Waiver, CDW.

I mentioned the car rental contract. Typically, this contract is between YOU and the Rental Car Company. Some contracts state that they will not deal with your car insurance since the contract is between you and them. They may place a hold on your credit card for a deductible if you do not purchase their coverage. You would be required to pay them directly and then sort it out with your insurance company in order to be reimbursed.
Why should you buy the LCD/CDW? Like with the liability coverage, do you want to expose your coverage for something your friend did while driving? A better way to look at this is to think of buying this coverage as “Trip Insurance.” After you are done buying airline tickets, paying for a hotel or condo rental, why would you want to spend your time on the phone with the insurance company sorting out a claim instead of laying by the pool, or on the beach? Buying the coverage on the car allows you to return the car to them, NO questions asked.

If that isn’t reason enough to consider buying the coverage, there are two other exposures that your car insurance will NEVER cover. The first is Loss of Use. If you have rented a convertible Mustang in Florida and are paying $50.00 a day for the experience, the rental car company will not be pleased if the car gets damaged and requires 20 days to be repaired. They are going to ask that YOU pay them the $1,000 they lost for NOT being able to rent that car.

The other issue is a relatively new concept, and it is rather complex, but there is NO coverage for “Diminished Value.” When rental car companies buy cars, they know that they will be able to sell them for a certain amount when they are done with them. If that car is in an accident, they cannot sell it for as much, so they can assess you for the diminished value of the car. There are only a limited number of states where this exists, but is is an exposure for which your car insurance will not respond.

So, in the end, what do I recommend? Buy the coverage. If not, be prepared to deal with a potential mess.