Do You Need Rental Car Insurance? 4 Questions to Ask About Your Personal Auto PolicyFebruary 13, 2020
The rental car industry is big business. It’s a near $23B industry, with nearly 2 million rental cars in service. So, it is no surprise that an estimated 36+/- million Americans employ the use of rental vehicles from year to year. There are many different reasons why renting a car can become a necessity from time to time, and other situations where it is a good idea from an economic standpoint. Destination vacations, long road trips, and, of course, temporary rental situations following a vehicular accident are all common reasons for people to rent a car. But, do you need rental car insurance?
Many auto renters don’t consider the insurance implications regarding vehicle rentals. However, it is important to understand how your auto policy will respond in the event of a claim involving a rental vehicle and consider the available ways to keep claims off of your auto policy whenever possible. A common question you will receive when renting a vehicle is whether or not you would like to purchase a collision damage waiver option from the rental company.
This waiver can significantly increase the cost of the rental bill, so the natural response of many drivers is to decline the additional purchase and save the expense. But, before you decline this option the next time you are renting a car, it’s important to make sure you are covered on your personal auto policy. Ask these questions about your personal auto policy so you know whether you need additional rental car insurance. In doing so, you can make sure you are protecting yourself and your financial security as wisely as possible.
1. What coverage do you have on your personal auto policy?
Check out a copy of your personal auto policy before you book your rental vehicle. If you can’t find it, request a copy from your agent or your carrier. It is extremely important that you review the coverages you selected on your personal auto insurance before you choose to purchase or decline the add-ons and options offered by the rental car company.
Do you have liability coverage only, or does your policy include full coverage for both comprehensive and collision claims?
If you only have liability coverage, you need rental car insurance.
In a scenario where the coverage you have on any of the vehicles you own is only liability, it is important to purchase a damage waiver from the rental company. Otherwise, if the rental car incurs damage from an accident in which you are at-fault, you will be legally obligated to pay for those damages.
If you have comprehensive and collision, you might not need rental car insurance.
It is standard for personal auto policies that include Comprehensive and Collision coverage to extend that coverage to vehicles rented by the named insured on the policy. This means that your personal auto policy can provide you with financial protection against these types of losses and pay the rental car company, on your behalf, for the damages sustained to their vehicle.
For this reason, if you have a personal auto policy, which includes comprehensive and collision as well as liability, you can make the choice to decline a damage waiver from the rental company without the risk of having to make a large out-pocket-payment after an accident.
You may still need rental car insurance to avoid “loss of income” penalties.
But, there is another consideration to take into account. If you have an accident with the rental car and the car is out of service for a period of time to be repaired, the rental company is losing money on the car because they cannot rent it out and you may responsible for that “loss of income.”
If you purchased the rental car insurance, or collision damage waiver, from the rental company, you would not be responsible for the lost income. Depending on the circumstances, it could amount to weeks of rental costs. Before you rent a car, it’s a good idea to check with your insurance agent to make sure you are covered from every angle.
2. Have you recently had claims on your auto policy?
Even if your personal auto policy will cover damages to a vehicle that occur as a result of a collision, it might not be the best scenario for you or your wallet to have it do so. Auto insurance companies frown upon accident frequency. For this reason, they give better pricing incentives to customers who have clean driving records and no recent losses on their policy.
If you have an accident with a rental vehicle and the damages are paid via your personal insurance policy, it could cause you to lose policy discounts in subsequent years. After a high frequency of claims, auto insurance companies may re-evaluate the profitability of the policy and decide to “cut their losses” and non-renew the coverage.
This can leave you in a situation of looking for another auto insurance carrier. Shopping your car insurance following a cancellation or non-renewal is not a great place in which to find yourself. Usually, your options of companies from which you can obtain coverage will be limited and the pricing will typically be higher than what you had been previously paying.
If you already have claims on your policy that occurred within the past 3 years, you may want to consider playing it safe and purchasing the available damage waiver. The cost of the waiver is cheap in comparison to the potential increase you might incur if your personal auto policy were to be non-renewed due to a high claim frequency.
3. What is your deductible?
Some vehicle owners choose higher deductibles on their personal auto policy in order to save a few dollars on their insurance premiums each year. While it requires a longer discussion to determine if that savings is, indeed, worth risking the potential for a greater out-of-pocket expense after an accident, it remains the case that many auto owners commonly choose collision deductibles of $500 or even $1,000.
Imagine you have a $1,000 deductible and a scenario where you total your personal vehicle in an at-fault accident. While it will be a bad day, and receiving $1,000 less than the actual cash value of your vehicle in your claim check because you selected a high deductible might sting a little, you are most likely going to be glad that you had insurance coverage. On top of that, you are able to purchase a replacement vehicle of like kind, quality, and condition without that entire expense coming from your own wallet.
In the same way that claims to your personal vehicle will be paid less your deductible amount, collision claims involving a rental vehicle will be settled similarly. This means that your insurance company will pay for the damages, or the actual cash value of the vehicle if it is totaled, less your $1,000 collision deductible. You will then be responsible for paying the rental company the additional $1,000 that is equal to your deductible amount.
Instead of putting $1,000 toward the purchase of your own replacement vehicle, you are paying that remaining $1,000 to make the rental car company whole. Chances are, the damage waiver begins to look significantly cheaper than the potential of a high out-of-pocket deductible or the loss of hundreds of dollars of policy discounts over the course of several years!
4. Does your policy have geographical limits?
Be sure that you familiarize yourself with what is called the “coverage territory” outlined in the policy conditions of your personal auto coverage. If you are having trouble locating these details, ask your agent for assistance.
Most personal auto policies in the US will be geographically limited in terms of where the coverage is in effect. This means that you may need to look to other insurance options if you are traveling overseas and planning to rent a vehicle while you are there. In these special circumstances, it is best to have a conversation with a reputable independent insurance agent before you embark on your trip.
So, do you need rental car insurance? It depends on your current personal auto policy, the coverages in place, and how much risk you’re willing to take. Consider these questions about your personal auto policy the next time you are renting a vehicle and you will be able to make better-informed decisions at the rental car company’s checkout counter. This is also something to keep in mind when you are customizing your car insurance policy.
Remember, having full coverage on your personal auto policy may give you the option of declining a damage waiver, but everyone’s circumstances and situation is different. It might be in your best interest to select this option from the rental company and protect your insurance policy from potential, and expensive, claims that can have longer-term financial impacts to your policy and your household’s bottom line.
If you would like to receive more information about auto coverage or have additional questions about insurance for rental vehicles, feel free to give one of our licensed independent agents a call today at 1-800-537-6880 or 717-665-2283.
Disclaimer: Information and claims presented in this content are meant for informative, illustrative purposes and should not be considered legally binding.