Spring break is nearly here and many Michigan residents will be vacationing in warmer places to escape the cold winter weather. We get this question frequently in both our Kalamazoo and Jackson offices and would like to provide you with some clarification and advice. Please note, to have coverage on a rental vehicle, you must have the coverage on at least one personally owned vehicle.
When you rent a vehicle, you could be responsible for losses for several reasons:
1. Liability for driving the vehicle
2. Physical damage to the vehicle
3. Loss in value of the vehicle
4. Loss of use charges is the vehicle is damaged.
If you are in an accident, you can be sued. This would be covered by your auto liability coverage. Keep in mind, this liability coverage usually only applies in the “territory of coverage”. On most auto policies, this is the United States, Canada and Puerto Rico. Liability coverage will not follow you in any other areas. If you travel outside these areas, you will need to purchase auto liability coverage for the area you will be driving in, because your auto policy will not provide it.
To have physical damage coverage on a rental vehicle, you must have comprehensive (other than collision) and collision coverage on at least one vehicle on your personal auto policy. If you don’t there is no physical damage coverage on a rental. This would cover any damage to the vehicle that would be covered on your own vehicle, subject to the deductible.
Loss in Value
This is a huge “gotcha” in renting a car. Many auto rental contracts allow the rental car company, at their sole discretion, to take a damaged vehicle and auction it for the salvage value, instead of repairing it. You are responsible for the difference in value from what the care was worth when you drove it off the lot and what they were able to get at auction. This could result in you being responsible for tens of thousands of dollars in reduced value on the vehicle. This loss would not be coverage by standard comprehensive or collision coverage, leaving you holding the bag for the claim.
Loss of Use
Rental car contracts also hold you responsible for the money that the rental car company would lose renting the vehicle if it is out of a service for repairs because of damage you are responsible for. They can bill a daily rate for what they could have earned by renting the car. This charge is also not covered by comprehensive or collision coverage.
What Should You Do?
Our advice for making sure you are coverage when renting a car is:
1. Always take the Loss Damage Waiver at the rental counter. While it is expensive, if the waiver applies, you walk away from the damage. You don’t have to file a claim with your auto insurance carrier and that claim would not be on your policy for rating purposes (a not-at-fault or at-fault accident and claim). Make sure all drivers of the rental car appear on the rental car contract.
2. Make sure you have comprehensive and collision coverage on at least one personally owned vehicle for back-up coverage in case the Loss Damage Waiver does not apply (it will have some conditions and exclusions that differ from your personal auto policy.)
3. Endorse your personal auto policy to cover loss of value and loss of use claims. Several insurance companies offer an endorsement that will pick up these losses. Often the endorsement is a flat amount yearly. This can fill the gap on your auto policy.
4. Use a credit card to rent the vehicle that offers primary physical damage coverage for a rented vehicle. Several credit card companies are offering this coverage on cards geared toward consumers who travel frequently. You want to read the fine print carefully and make sure that the coverage is primary and will pay first, not just pick up a deductible after your own personal auto policy pays. Often this coverage will not have deductible and will keep the claim off your personal auto policy, where it might affect your rates.
If you have questions about your specific policy, please contact one of our customer service representatives to review your specific coverage.