Rental Car Insurance
Updated: May 17, 2022
Our agency gets many inquiries from clients who want to know what, if anything, their insurance covers when they rent a car on vacation, business, etc. It seems like a simple question, but (like everything with insurance) there are a number of different considerations that make the answer a little more complicated than a simple “yes” or “no”.
The good news is that many policies, like the Massachusetts personal auto policy, “follow” YOU and HOUSEHOLD MEMBERS when renting or borrowing private passenger autos on vacation. The policy stipulates that the rented or borrowed vehicle must be a “replacement” vehicle, which means that the vehicle from which coverage is being temporarily transferred must not be in use at the same time as the rented or borrowed vehicle. Obviously, only the coverages that you have on your personal auto policy would transfer – if you don’t have optional bodily injury, collision, comprehensive, etc. coverage on your own car then your policy would not provide those coverages on a rental car, so be sure to be familiar with your policy before renting a vehicle.
In Massachusetts, the personal auto policy is also very clear about the fact that it will only provide coverage to other private passenger autos while being used by you or a household member with the consent of the owner, which in the case of a rental car would be the company from whom you rent the vehicle. Rental contracts list specific violations that void the contract and could cause you to “lose consent of the owner”.
Most policies "follow" you when renting or borrowing a car; when renting, your credit card may provide additional insurance, too.
Other items to consider when renting a car
All policy coverages have a “regular use” exclusion. If you rent a vehicle for too long a period of time – usually 30 days – the policy will exclude coverage.
Collision and comprehensive coverage pay on an Actual Cash Value (ACV) basis. Some rental contracts require replacement value, fair rental value, or “manufacturers buyback program value”.
Rental car company contracts include restrictive language concerning Loss of Use, administrative charges, Diminution in Value or “Before and After”, towing, and storage charges should the vehicle be damaged. These terms are defined below.
Loss of use
This term refers to the potential income lost by the rental car company in the event of an accident that removes the vehicle from the fleet for any amount of time (downtime). Even if, as is most common, damage to the rental car is covered under your auto policy’s physical damage (“collision”) section, you will certainly have to pay your deductible and at least a portion of the loss of use charge. When it arises, it’s a claim that must be addressed on a case-by-case basis, since the Massachusetts auto policy does not specifically include or exclude loss of use coverage. The Loss Damage Waiver offered by the rental car company will close this gap.
Diminution in value
This potential charge represents the reduction in a vehicle’s market value due to its having been in an accident. Again, while most auto insurance policies will cover the physical damage to a vehicle, less your deductible, few cover diminution in value. The current options for covering this gap are to either a) self insure, or b) purchase the rental car company’s LDW.
Before and after
Diminution in value is a concern when the rental company repairs a damaged vehicle – but what if it isn’t repaired? In some cases, the damaged car may simply be sold for salvage. The rental car company then charges the renter the difference between the market value on the day of rental (“before”) and the amount the car brought at the salvage auction (“after”). This sample language was found in the contract of a major rental car company, “If the car is damaged, you will pay our estimated repair cost, or if, in our sole discretion, we determine to sell the car in its damaged condition, you will pay the difference between the car’s retail fair market value before it was damaged and the sale proceeds.”
Finally, there are some other issues that should be considered when renting a car. There may be specific situations that void the rental contract. For example, many rental car companies do not permit drivers under age 25 to drive a rented vehicle. And even if you buy the optional Loss Damage Waiver, all rental car waivers have a clause voiding coverage if the renter improperly operates the vehicle at the time of an accident. Although wording varies, most waivers prohibit reckless or intoxicated use or of use off paved roads. There is no coverage if an unauthorized driver uses the vehicle, so handing the keys to a valet voids the waiver, too. Theft of the vehicle is not covered if the keys are left in the car or if the vehicle is unlocked.
In most cases, buying the Loss Damage Waiver is the only way to close the significant rental car gap that may exist. With this coverage, you would not be charged for repairs to the vehicle, Diminution in Value, Before and After assessments, or for any loss of use...as long as you have not engaged in any prohibited use or otherwise voided the waiver.
In addition to considering the Loss Damage Waiver, be sure to research any coverages available through your credit card(s). Many cards automatically provide some rental car coverage, so it may not be necessary to buy additional coverage through the rental car company.
The best advice for these and many other specific questions is to READ THE RENTAL CONTRACT!
Not sure of the rental insurance coverage under your current policy? Request an Acacia Insurance Tune-up(SM) today.
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Acacia Insurance has been helping to make the unexpected uneventful since 1988, and we look forward to working with you. Please contact us with questions and for additional information.
The insurance policy, not this Web site, forms the contract between the insured and the insurance company. The policy may contain limits, exclusions, and limitations that are not detailed in this Web site. Coverages may differ by state.