Summer vacation is upon us and many families are jetsetting and road tripping to create memories that will last a lifetime. In the midst of the excitement of the vacation to come, it’s important to consider all aspects of your trip and prepare for any unfortunate events that could come your way.
When renting a car, it can be hard to know if you need additional rental insurance coverage. For some drivers it's a necessity, and for others it's a redundant expense. After reading this article, if you are still not sure, we welcome your call to review your insurance with you if you prefer.
There are additional considerations you must make if you are renting the vehicle for business use, and your auto insurance does not cover your use of a car outside of the US, its possession, Canada, and 25 miles into Mexico.
Should I purchase the Loss Damage Waiver offered by the rental agent when I rent a vehicle?
When you are standing at the rental counter hoping to get the type vehicle you requested, there is a moment when the agent asks the inevitable question: “Do you want to buy our loss damage waiver (or our insurance coverage)?”
First, you should know that the LDW is not actually an insurance policy. It is a waiver of the rental company’s requirement in the rental contract that you bring the vehicle back in the same condition as when it left their lot. Most rental contracts make you responsible for any damage to the vehicle, including theft and weather-related damage. When you purchase the LDW, the rental company is removing that provision from the contract on a conditional basis.
If you don’t purchase the LDW and the vehicle is damaged, here are some of the costs for which you could be held responsible under the rental contract:
Cost to repair damage to the vehicle, or the full value of the vehicle if it is a total loss
“Diminished value” of the vehicle – the difference between what the vehicle was worth beforethe accident and what it is worth after repairs have been made
“Loss of use” – the amount of money the rental company loses on rental fees while the vehicle is out of service for repair or replacement
Administrative or loss-related expenses incurred by the rental company, such as fees for towing, appraisal, and claims adjustment, plus general office expenses for handling the paperwork
Whether all or any of these costs are covered by your personal auto policy depends on several factors you should consider...
Different type auto policy forms may offer rental car coverage but from two different sections of the contract.
Some auto policies offer this coverage under the Liability section for your agreement. If the conditions are met for the type of rental (who is driving, where the vehicle is being driven, etc.) then the contract may respond to those costs listed above.
Another section to your auto policy that may offer rental car coverage is under Damage to Your Vehicle (sometimes referred to as Collision and Other Than Collision coverage). This will offer coverage for damage to the rental vehicle – IF your policy provides physical damage coverage on at least one of your covered vehicles.
But when coverage is provided under this section of the policy, the amount payable by the insurance company is the lesser of the “actual cash value” of the vehicle or the amount “necessary” to repair or replace the vehicle, minus your deductible.
In addition, the policy covers “loss of use” with a daily limit (usually as low as $20 per day) and a maximum limit (usually $600), and there is usually a 1- or 2-day waiting period before the policy will begin to pay these expenses. Because of all these limitations, you may become personally responsible for:
The amount demanded by the rental company to repair or replace the vehicle in excess of “actual cash value” or the amount “necessary” to repair or replace;
The amount of your deductible;
The amount demanded by the rental company for “loss of use” in excess of the daily and maximum limits payable by your insurance company;
The amount demanded by the rental company for “diminished value” of the vehicle, even after the repairs are complete;
The amount demanded by the rental company for administrative or other loss-related expenses.
If you choose to rely on your auto policy to provide this coverage, your premium may go up or your policy may not be renewed if you have an at-fault accident. You are driving an unfamiliar vehicle in unfamiliar territory. If you have an at-fault accident while driving the rented vehicle, your insurance company may hold it against you – with a premium surcharge or perhaps even non-renewal.
Your line of credit may be adversely affected.
If you don’t buy the LDW, the rental company will probably ring up an estimated damage amount on your credit card, pending notification to and settlement by your insurance company. Do you have enough credit limit for a charge exceeding $5,000?
You may suffer a huge inconvenience.
When you have purchased the LDW, you can bring a damaged vehicle back to the rental company, throw the keys on the counter, and walk away. When you haven’t purchased the LDW, you may have to spend a significant amount of time dealing with the rental company and your insurance company.
It may be costly, but the better decision may be to buy the Loss Damage Waiver from the rental company.
Have a question about your current auto policy and what it covers? Contact us today at (361) 573-4475 or email us at email@example.com.