Rental car insurance is add-on protection for your vehicle that your rental company will try to sell you before you drive off the lot. Costing as much as $15 or more per day, the decision to purchase this coverage should not be taken lightly. Though rental car coverage works similarly to a personal auto insurance policy, there are some big differences. Continue reading to learn how rental car insurance works and whether it could be right for you.
It’s Not Insurance, but It Still Offers Real Coverage
Rental car companies are not licensed to sell insurance. Instead of selling a temporary insurance policy, they instead sell loss damage waivers. Under these agreements, the rental company waives its right to pursue you for compensation if you return a damaged vehicle or if the vehicle is lost or destroyed due to a covered event.
In some ways, this coverage works differently than an insurance policy, since there are no deductibles to pay and no limits on the value of the coverage. That is in stark contrast to personal insurance, which may only pay benefits up to the agreed upon or actual cash value of your vehicle. With a loss damage waiver, the rental company promises to absorb all of the loss, including the administrative fees, towing charges, and even the loss of rental profits while the vehicle is being repaired.
Exclusions Could Void Your Coverage
Even if you pay for a collision damage waiver, you might still find yourself responsible for damages to your rental vehicle if you violated the terms of the agreement. Though every rental company has its own restrictions, the damage waiver might not apply if:
- An unauthorized person drives the vehicle
- You had even a sip of alcohol prior to a collision
- You were speeding, racing, or engaging in reckless behavior in the vehicle
- You lied to the rental company in any way
It is important to read the fine print in a collision damage waiver – especially when it comes to exclusions. If the terminology is vague and open to interpretation, it could give the rental company the opportunity to pursue you for damages after an accident.
Reasons to Purchase the Collision Damage Waiver
Even with the high cost and the heavy restrictions that may exist in rental car insurance, there are still valid reasons for purchasing the collision damage waiver from your rental company. For many drivers, it is all about preventing frustration and saving money after an accident. Relying on personal insurance or coverage from a credit card company means coordinating the payment of benefits between third-parties and the rental company. Not only can it be time-consuming, but there can also be disputes between all parties involved over the value of the loss and who is responsible for paying the claim.
In addition, the collision damage waiver could save you money on out of pocket expenses. Personal insurance policies typically require payment of a deductible for collision and comprehensive claims. This can total hundreds of dollars in expenses if you do not have access to secondary rental car damage benefits from a credit card company or another source. Furthermore, the rental company may immediately charge the credit card on your reservation for any damages to your vehicle. While the money should eventually be refunded to you after the claim is settled, you might find yourself paying interest and carrying a maxed out credit line in the mean time. With a loss damage waiver, you will not be charged for any shared financial responsibility at all.