Proper Rental Car Insurance Coverage Is Tricky
Credit Card, Personal Auto Policies Probably Won't Cover All Losses
Nov 7, 2007
Remember the cardinal rule of rental vehicle insurance: the renter is always responsible for any loss or damage to a rental vehicle, regardless of who is at fault. From the moment a renter signs the agreement until the car is safely returned, in the eyes of the company the renter solely is obligated to pay for any loss or damage, even if someone else is 100% at fault.
Renters who decline CDW/LDW (collision and loss damage waives) offered by car rental firms assume that coverage afforded by their credit card and/or personal auto policy (PAP) will protect them. That can be a risky assumption. Personal auto and credit card policies seldom pay 100% for any and all eventualities that can befall a rented vehicle.
What's Covered By Credit Card Rental Car Insurance
Credit card rental coverage is legally governed by formal insurance policies, not by statements on a Website or in a brochure. These actual policies are not easily available to cardholders.
- Credit card insurance is usually supplemental: it reimburses only for loss over and above what is covered by any other insurance the driver carries. If a renter has a personal auto policy (PAP) in play, or bought the rental firm's CDW/LDW, the credit card company may deny payment for a loss.
- Credit card insurance usually covers only damage to or loss of the rented vehicle, not other cars, personal belongings, or the property of others. There may be no personal liability coverage for bodily injury or death claims.
- Some cards lack any car rental insurance protection, especially debit-only cards and those with low credit limits.
- Coverage can change, be spotty or incomplete. One card might cover damage but not theft, and another card might not cover either. Coverage may apply in some countries but not others.
- Card company customer service staff may not be insurance agents, and thus could be ignorant of, or misinformed about current coverage details and nuances. It may be difficult to know exactly what coverage the card provides, until it’s too late. When asking a credit card representative about coverage details, ask if he or she is licensed. In most states, only licensed P & C (property and casualty) insurance agents are legally permitted to offer advice and counsel about insurance policy coverage details. The opinions of unlicensed personnel have no basis in law and probably are not enforceable.
What's Covered By a Personal Auto Policy
- A personal auto insurance policy (PAP) usually extends damage protection to rental vehicles, but only if it’s a “full coverage” plan, meaning it insures against losses due to collision, rollovers, and a host of hazards (like flood, fire, and theft) collectively called "other than collision" (a.k.a. comprehensive). A bare-bones PAP, that provides only liability and uninsured motorist protection, will be useless if the rental car is damaged or stolen. PAP liability protection pays only for damage to other vehicles and property.
- A full coverage PAP usually pays the lesser of a vehicle’s “actual cash value” (i.e., its depreciated blue book price), or the amount necessary to repair or replace the lost or damaged property, less its deductibles. But the rental agreement may require a renter to reimburse the company for the higher full retail value of the vehicle after an accident. If that assessment exceeds a lower appraisal by a claims adjuster working for the PAP insurer, the driver would have to make up the deficit. In any event, if a PAP insurer pays a sizable rental car loss claim, it may raise its rates, or not renew the PAP.
- Many PAP insurers don’t reimburse for “loss of use,” a charge the rental firm may legally recoup for income it forfeits because it can’t rent the vehicle while it is out of service for days or weeks being repaired or recovered. State Farm and other carriers offer a "Use of Non-Owned Cars" endorsement that pays for loss of use and administrative charges.
- A PAP insurer may have the right, under terms of its policy, to inspect and appraise a damaged vehicle before repairs are made. The rental company, which has no obligation to an outside insurer, may fix the damage immediately. Then, the PAP insurer could deny coverage for failure to comply with this contractual condition.
- A rental firm may collect for its damaged car's diminished value, which means a repaired vehicle is inherently less valuable than an undamaged factory original. (Indeed, Carfax often tracks major wrecks and repairs). Since most PAP insurers are not obligated to pay for diminished value, the renter makes up the deficit.
Frequent renters and those who don't carry a PAP policy should consider a non-owned auto policy that, for about $300 a year, typically covers damage to another (not the rental) car, liability for injuries, medical payments and uninsured motorist coverage. If an employer claims to carry non-owned and hired auto coverage for its employees, which may cover damage to the rental vehicle, get confirmation of policy details in writing. Do not rely on an oral assurance from an HR staffer who may know little about the intricacies of rental vehicle insurance.
Declining the rental firm’s CDW or LDW can sometimes have an unintended consequence. Upon learning of an accident or loss, a rental firm may immediately charge its customer’s credit card for the full value of a loss, up to the card credit limit. Be aware that when relying on coverage not sold by the car rental firm, settlement of a loss or damage claim may linger, and the account might be temporarily maxed out until the matter is resolved. Carry a backup card in case an accident or loss occurs far from home.
