If your vacation plans require a rental car, knowing what your existing insurance policies cover could save you money.
The next time you rent a car and the agent asks whether you want the optional coverages, should you say yes or no? Buying them will add substantially to your car rental costs—if you buy all the additional coverages offered, you’ll add at least $18 to the rental charges per day. Are these coverages worth it? Read on for more information.
CDW or LDW
The collision damage waiver (CDW) or loss damage waiver (LDW) cost the most of any of the optional coverages, about $10-$25 a day. Although the CDW and LDW are not insurance, they will waive your financial responsibility if a car you rent is damaged or stolen.
When you sign a rental car agreement, you agree to become responsible for any damage to the car. For example, Alamo says:
Alamo holds the renter responsible for the safe return of the rental vehicle in the same condition as it was rented, except for normal wear and tear.
Fair enough. The problem is that most rental companies will expect you to pay for damage to your rental car immediately, even charging the amount to your credit card. Many rental companies will also tack on additional fees, such as loss of use fees. Some also charge for “diminution of value,” or the loss of the car’s resale value due to the damage. Alamo’s rental agreement reads:
Unless prohibited by law, a renter may be held responsible for all damages, including loss of use (emphasis added), should the vehicle be damaged in an accident, stolen or vandalized. This is the case regardless of fault.
So not only will you be on the hook for the cost of repairs, you’ll also be on the hook for “loss of use,” even if the accident is not your fault. If you bought the CDW or LDW, you don’t have to file a claim with your insurance company—the CDW or LDW will pay (after you fill out some paperwork, of course) and you can walk away.
Well, you might not walk away completely scot-free. Did you read the fine print on the CDW or LDW carefully? Some rental companies offer different levels of coverage under their CDWs and LDWs. Some waive all charges and fees, up to the value of the car. Others will waive damages up to a set amount—from $500 to $3,000—and hold the renter responsible for amounts over that. These waivers are designed to pay the deductible amount under your personal auto policy, and should cost substantially less than a complete waiver of your financial responsibility.
The CDW or LDW will generally not apply if you violate the rental agreement in any way; for example, using the car off-road, driving while intoxicated, allowing someone not named on the rental car agreement to drive, etc.
Rental car companies can provide up to $1 million in liability coverage for between $7 and $14 per day. This covers you for property damage or bodily injury you cause to another person while driving the rental car.
Personal Accident Insurance
This covers you and your passengers for medical costs if you’re injured in a car crash for between $1 to $5 a day.
Personal Effects Coverage
At an additional $1 to $4 per day, this coverage will reimburse you for the theft of items from your rental car.
You may have coverage elsewhere. Coverage under your personal auto policy applies to rental vehicles, so buying the optional coverage might simply duplicate coverage you have already.
Personal Auto Policy
For example, your personal auto policy extends collision and loss coverage to cars you rent for personal purposes. (Cars you rent for business are another matter.) However, if you have “bare bones” coverage, or no collision coverage, buying the CDW or LDW might make sense for you, unless you’re willing to run the risk of having to pay for a relatively new car if it’s totaled. Further, most personal auto policies won’t cover you for any loss of use fees or diminution in value charges.
Many major credit cards also offer rental car protection. For example, most Visa, MasterCard and American Express cards offer rental car protection automatically when you use your card to charge a rental. Terms vary, but the coverage pays for collision damage or theft to rental cars. To activate, simply charge the rental to your card and decline the rental company’s CDW or LDW. Most credit card programs consider your personal policy “primary coverage,” meaning that it will pay only after your personal policy has.
As for liability coverage, your personal auto policy should provide the coverage you need if you have adequate limits—or if you have an umbrella liability policy. Umbrellas can provide valuable high-limits liability coverage for a variety of situations, not just driving, at a low cost.
Your homeowners or renters policy covers your personal property even outside the home. You’ll have to pay the deductible, and policies exclude coverage for certain types of goods—such as equipment used in your profession. They also have lower limits for certain high-value goods, such as jewelry, silverware and firearms. To protect these items, you will need either an endorsement (or addition) to your policy, or a separate floater policy. These will cover your goods anywhere in the world.
Group or medical insurance will cover you for auto accidents that occur while you’re driving for pleasure or on personal time. If you’re renting a car for business, however, your employers’ workers’ compensation might apply.
Many personal auto policies exclude coverage for cars rented for business purposes. Further, many employers have specific requirements on which rental companies to use and when to accept the rental company insurance. Check with your company’s accounting or travel department for the company’s auto rental requirements before you travel.
We can help you review your auto coverage to see whether you have enough coverage for all your driving situations. Please call us to schedule a review.