Does My Auto Policy Cover a Rental Car??

One of our clients' most common questions at the beginning of the summer is:

"Does my auto insurance policy cover a rental car on vacation?"

We wish that our answer could be a clear "yes", but there are many shades of gray (caused by fine print in the rental car contract!) to consider.  The short answer is that we generally advise our clients to buy the rental company's coverage when on vacation.  Here is why:

As a general rule, your auto insurance policy does extend to a rental car if:

• You will be driving the rental car in the US or Canada.
• You drive with the rental car company's permission. (Please make sure everyone who might drive the rental car signs up as a 'driver' on the rental agreement.  A driver who is not listed on the agreement does not drive with permission)

Also keep in mind that your auto insurance policy only covers the drivers that are listed on your auto policy.  So, if you are traveling and sharing a rental car with a friend, make sure they check to see if they are covered under their own insurance policy.

• You are renting a car for short-term use only. (Short term generally means less than 28 days)
• You are renting a car for personal use.   

Your personal auto policy generally does not cover business use, unless this is a specified part of your policy.  Therefore, if you use the rental car for business purposes, your loss may not be covered.

• You have the necessary coverage on your auto policy.

That means you not only have liability, underinsured motorists, and medical payment coverage, but also comprehensive and collision coverage.  If you dropped the latter two coverages on your own car(s), you would not have coverage for damage to the rental car (such as a broken windshield or collision loss.)

• You are renting a private passenger automobile.

Clients often ask if they need to buy coverage for a moving van.  The answer is YES.  Your auto liability will extend, but there is no coverage for damage to the rented moving truck because it doesn't fit the description of "private passenger auto".

All of this sounds like your auto policy might cover you for a rental car, does it?  So why do we recommend that you spend vacation dollars on the rental car company's insurance?

Because we don't want your vacation spoiled by delayed travel or a surprise charge to your credit card due to "traps" in the rental car contract!!

You have the option to purchase a "Loss Damage Waiver" (LDW) from the rental car company. If purchased, this waiver relieves you from financial liability for the loss of, or damage to the rental car and the parts and accessories that come with it.  You may consider purchasing the LDW for the following reasons:

1. Rental car companies only make money when they are renting out their cars.  If the car you rented gets damaged and needs repairs, the rental car company cannot rent it during the repair process, which can often exceed several weeks.  In most cases, the fine print in your rental agreement will stipulate that you owe the rental company for loss of rental income during the repair.
2. If you don't have collision and comprehensive coverage on your auto policy, or if you don't want the rental car company to charge your credit card for the total cost of the repairs (which they will do - rather than wait for the settlement from your insurance company) you should buy the LDW. (If you have comprehensive and collision coverage on your auto policy, buying the LDW may sound like buying duplicate coverage. But if you buy it you may not have to file a claim under your personal auto policy, you won't have to pay the deductible, and you may not face a rate increase at your next renewal.)
3. If you decide to buy LDW, be sure to read the fine print: There are likely to be some exclusions, such as coverage that does not apply for drivers not listed on the contract, when driving intoxicated, when driving off road, or when driving certain stretches of road, such as the infamous road to Hana in Maui.
4. One common question is: "Doesn't my credit card provide insurance for a rental car?"         Maybe.  Some of the premium credit cards (Gold & Platinum, etc) do indeed offer coverage for a rental car.  Since the contracts vary from card to card, you may want to call your credit card company to find out exactly what is covered.  Some cards may only provide secondary or excess coverage, requiring you to file a claim with your own auto policy before the credit card coverage applies. 

Our recommendation is: Don't rely on insurance coverage through your credit card unless you've researched this issue thoroughly.

    5.  Finally, keep in mind that your personal auto policy will only extend protection in the US,  and in Canada.  If you plan on renting a car in Europe, Asia, or South America, your personal auto policy will NOT extend.  In that case, it is best to purchase maximum limits of liability, in addition to collision and comprehensive coverage, directly from the rental car company.