We are frequently asked whether a personal auto insurance policy automatically transfers coverage to a rental vehicle. Like many insurance related questions, there is a short answer and a longer, more complicated answer. The short answer is yes, physical damage coverage does transfer to a rental or “temporary replacement vehicle”. However, it is important that you understand how the conditions, limitations, and exclusions of an auto insurance policy affect the coverage that is afforded to a rental or replacement vehicle in your custody. In other words, read on for the longer, more complicated answer…
The Rental Agreement
A rental car agreement is a binding contract between you and the rental car company. The agreement will specify that you, the renter, are personally responsible for any and all damage to the car, other than normal wear & tear. As an example, Dollar Rent A Car uses the following verbiage in their agreement:
Loss or Damage to the DOLLAR Vehicle: The renter and any additional drivers are absolutely liable for any loss or damage to the rental vehicle, even if someone else caused it or the cause is unknown, whether due to theft, fire, hail, flood, collision, vandalism, or any other cause, subject to limitations imposed by the law where the vehicle is rented. This liability will not exceed the full value of the vehicle, plus:
- Actual towing and storage charges;
- Loss of use;
- Diminution in value, regardless of whether the vehicle is repaired or not;
- All rental charges through the date you report the incident if not returnable or the return date, whichever is later;
- Any out-of-pocket expenses incurred by us as a result of the loss or damage to the vehicle;
- A reasonable administrative fee; and
- Pro-rata license plate fees, all as allowed by law.
Coverage Provided By Your Policy
Again, remember that you personally are responsible for damage to the car and any of the associated costs outlined in the rental agreement. Your insurance company is obligated to pay only for those damages that are covered in the insurance policy. Herein lies the root issue – many of costs the rental car company might hold you responsible for are simply not covered by your personal auto policy.
For instance, your personal auto policy provides coverage for the “actual cash value” of the vehicle or the amount necessary to repair or replace the damaged property. In the agreement above, Dollar RAC stipulates you are responsible for the “full value” of the vehicle. The definition of “full value” is not included but presumably, Dollar could assert that means the replacement cost of the vehicle. The rental company may try to charge you for any “betterment” (increased value of new parts replacing old parts) that the insurance company deducts from the claim settlement. In addition, a claim for “diminution” of value may be brought against you, for which there is likely no coverage under your policy.
You are also responsible for the loss of use of the vehicle, meaning the lost rental income for the duration of any repairs. Additionally, you may be charged for administrative expenses such as appraisal, storage, loss adjustment, etc. There is very little, if any, coverage for these expenses under a personal auto policy.
Your personal auto policy includes a condition that says the insurer has the right to “inspect and appraise the damaged property before its repair or disposal”. The rental company, however, has no such obligation to your insurance company and may choose to begin repairs immediately. This could, potentially, result in a claim being denied because of failure to comply with the policy condition.
We frequently hear from customers that are renting a large truck – think U-Haul or Ryder. These trucks, due to their GVW, may NOT meet the definition of an insured vehicle under the terms of your personal auto policy. Your policy may not provide physical damage coverage. Liability coverage, however, may apply depending on the verbiage in your policy.
Keep in mind also that your personal auto policy will typically have a deductible of $100 to $1000 that will be applied towards any damage to the rental vehicle.
In short, the coverage extended to a non-owned or rental vehicle is essentially the same as what is provided for your owned vehicles.
Properly Insuring a Rental Vehicle
The rental car company will always try to sell you their coverage, referred as CDW (collision damage waiver) or LDW (loss damage waiver). We know it’s expensive. In fact, it is disgustingly overpriced and hugely profitable for the rental car companies. However, it is the one solution that allows you to walk away from damage to the rental car with no further out-of-pocket expenses. We strongly recommend you consider purchasing CDW/LDW, at least for a short-term rental. Consider also buying any supplemental insurance coverage provided by your credit card company. American Express, for example, offers a primary rental car insurance plan that can be purchased for around $25 per rental. Other credit cards may have similar plans that would pay for some of the expenses not covered by your auto insurance policy.
Please remember that the verbiage and coverage provided by a personal auto policy will very slightly from one insurance company to the next. The statements made in this article are generally correct, but may not address the specific nuances of your particular policy. As always, if you have any questions about your specific policy coverage or insuring rented vehicles please contact us anytime.