Rental Car Coverage vs. Private Auto Insurance Policy

So you’ve flown out of town on a family vacation. You arrive at the airport and now it's time to pick up the rental car.  As you’re signing the paperwork, the representative asks, “Did you want to purchase the auto insurance coverage?” 
You're prepared for that question. You checked with your auto insurance agent, who told you that since the rental car can be considered a temporary replacement for the car listed on your existing policy, the liability coverage extends to the rental. So you've got nothing to worry about, right? Not necessarily. Let’s take a look at some of the gaps in coverage that can occur and how the rental policy can prevent them.

When deciding whether to spring for the rental coverage, there are two options to consider:  liability and physical damage. 
First, liability coverage. Should you cause an accident in your rental car, this would protect you from responsibility for bodily injury and property damage.  The rental company will usually offer the option to purchase coverage through them. Keep in mind, typically this coverage is “in excess” of the coverage on your private auto insurance policy.  As a general rule, the rental car liability coverage will provide the same protection as the private auto insurance policy. So, really, the only reason to purchase would be the possibility of an accident so severe it exceeds the limits of your PPA (Private Personal Auto) coverage. While it's true that driving an unfamiliar vehicle in an unfamiliar location may increase your chances of such an accident, your consumer dollars are probably better off spent bumping up the limits of your current policy so you can enjoy that expanded coverage year-round.

Next up is physical damage, and here's where the gaps may occur.  Your PPA policy would cover any damage to the rental car itself, but what about the downtime?  An extensively-damaged car could mean a loss of income for the rental company due, since that car would be out of commission for a while. In that case, the company has the right to come back to you to be made whole. Your PPA policy doesn't cover this -- but the rental policy does.

If the rental is severely damaged, it may need a reconstructed title, which would mean a depreciation in value -- another potential loss sustained by the rental company that could come back to you.  Does your PPA policy cover this “diminution of value"? Nope. But the rental policy does!

Now, keep in mind that for damage covered under your personal policy, your deductible would be applicable. That means you'd have to pay out of pocket, on the spot.  Even if the damage is below your deductible limit, the rental company may insist on being reimbursed for the full deductible to cover unforeseen costs. And if the damage is ultimately below the deductible amount you paid, you run the risk of not receiving a refund. 

Another important consideration: If you cause damage in the rental that's covered by your personal policy, this will be reflected on your driving record with your auto carrier. With the rental car protection, this payout won't be held against you -- a sort of "get out of jail free" card.

You also risk your vacation. If you damage a rental car and haven't purchased the coverage, the rental company could refuse you another rental until they can reach your insurance company to confirm they'll pay the claim. In that case, you'd be out of luck for however long it takes to reach your insurance -- and hopefully it doesn't happen on a weekend or over a holiday.  In other words, sometimes it is advisable to purchase the coverage and consider it “vacation insurance”.  Leave the worries to the rental company so you and your family can focus on enjoying that getaway.

Overall, even though personal auto insurance is designed to protect you from unforeseen losses when operating an owned or borrowed vehicle, there are additional responsibilities and liabilities incurred when entering into an agreement for a rental car. As with any contract, be sure to take a look at the terms and conditions of the rental insurance and understand the stipulations and limitations of their coverage.

Posted by: Robert Lafaro