The rental car you’re driving while on vacation or a business trip is nice — you almost wish you could take it home with you. But what happens if you have an accident while you’re renting it?
When you do go home, the last thing you want to take back with you is the liability associated with a car you don’t even own.
TREAT IT AS IF IT WERE YOUR OWN
The best way to protect yourself when using a rental car is to have a regular automobile insurance policy for your own vehicle or vehicles. Your policy will provide liability coverage for you on an “excess” basis; it will not come into play unless a liability claim exceeds the liability limits carried by the rental car company. Most personal auto policies define covered “nonowned autos” broadly enough to include short-term rental cars for collision and other-than-collision (also known as comprehensive) physical damage coverage. Keep in mind, though, that you must have the coverage for your own car in order for it to apply to a rental car.
If you don’t own a car and rent on a regular basis, you might want to purchase a nonowner policy.
Such policies generally offer liability, medical payments, and uninsured/underinsured motorist coverages; they usually do not offer collision and other-than-collision coverage. To provide these physical damage coverages, most rental agencies offer loss and collision damage waivers —for a price, of course.
DOESN’T MY CREDIT CARD ISSUER AUTOMATICALLY INSURE ME WHEN I RENT A CAR?
Many major credit card companies claim that they’ll provide you with insurance coverage when you use their card to rent an automobile. However, you should read the fine print or get written verification of terms from the company, because the coverage provided by your credit card is not always full coverage.
Some cards offer coverage only if you rent your car from a particular agency. Some limit the days for which coverage is available or provide coverage only for certain types and/or classes of cars. With some cards, the coverage isn’t automatic, and you must enroll in a program to get it.
Some cards that advertise automatic rental insurance really reimburse you only for the deductible that you’d have to pay under your regular insurance policy. Still others may provide only collision and other-than-collision coverage, leaving you exposed for personal injury or property damage to others.
This isn’t to say that all credit cards fail to provide the coverage you need. It merely illustrates that you shouldn’t blindly rely on your credit card issuer to protect you when you rent a car.
The best way to protect yourself when using a rental car is to have a regular automobile insurance policy for your own vehicle or vehicles. If you don’t own a car and rent on a regular basis, you might want to purchase a non-owner policy.
WHAT ABOUT COVERAGE OFFERED BY THE RENTAL AGENCY?
The insurance packages that you purchase from a rental car agency (typically called loss damage waivers) may or may not provide the protection you need. In your rush to get out of the airport, you may not realize that the loss damage waiver you purchased insures the rental car, but not its contents, against theft. That could be a big surprise when your laptop computer and expensive camera are stolen from the rental car, and the rental agency rejects your claim. (Check your homeowners insurance policy in this case — you may be covered.) Similarly, you may discover that the loss damage waiver you purchased for liability provides only limited coverage. Furthermore, many loss damage waivers exclude certain items and/or situations from coverage.
Again, this isn’t to say that rental car agencies are unable to provide you with the protection you need. You should read the fine print or get verification from an agent if you have any doubts.
WHAT IF I HAVE A REGULAR POLICY, BUT IT ISN’T FULL COVERAGE?
It’s possible that you have insurance on your personal car, but you don’t carry collision and other-than-collision, or sufficient liability coverage. It may not be necessary to call your agent and add additional coverage just so you will be protected when you rent a car in Mexico during your upcoming vacation. You can probably close the gaps in your coverage using loss damage waivers and coverage offered by your credit card insurer.
OTHER SOURCES OF COVERAGE
If you’ve suffered a loss that isn’t covered under your auto policy, don’t forget to check your other insurance policies. For example, if personal property has been stolen from your rental car, it may be covered under your homeowners or renters policy. Similarly, certain medical policies may cover costs of injuries not covered under your regular automobile plan.
LAWRENCE M. POST
CPA, MST, CFP®, CIMA®
Senior Tax & Planning Advisor