Entering the question "Should I buy insurance when renting a
car?" into any search engine will yield well over a million
responses. Unfortunately, many of the responses suggest that the
answer to this important question is clear and simple. As
insurance practitioners know, as with most coverage questions,
the answer is not at all clear and certainly not simple. For the
purposes of this article, the comments that follow are intended
to address the short-term (less than 30 days) rental of a
private passenger automobile, for personal (not business) use,
that will be operated in the United States, its territories and
possessions, Puerto Rico, and Canada. When renting a vehicle
other than a private passenger automobile for personal use or
any vehicle outside of the above referenced locations, consumers
should be advised that most personal auto insurance policies
contain exclusions and limitations that will greatly restrict
coverage. In such instances,
purchasing coverage from the rental provider is highly advisable.
The Perfect Storm for Confusion .... and Anxiety
With so many different answers to this question available on
the Internet, is it any wonder that consumers feel such
uncertainty over how to respond when the friendly rental car
representative skillfully coaches them on the importance of
accepting the insurance offer in front of them? Forget for a
moment the surprising lack of industry consensus on this issue.
Instead, consider the human factors contributing to the unease
most consumers experience. Not the least among them are
consumers who are not insurance savvy and must essentially
assess which of three potential stakeholders they should rely on
in the event of an accident—their auto insurance provider, their
credit card company, or the rental car provider.
While smart consumers prefer to make decisions armed with
real insights, it is unrealistic to expect more than a few to
know the right questions to ask. What are my risks? What are the
differences in the protection provided by each option? Is any
protection being duplicated? Triplicated? Which coverage is
primary? Add to this uncertainty and angst the insurance
misinformation often inserted by the rental car company
representative: "Are you SURE you
wish to decline? Does your insurance coverage protect you in
this state? Sign here to decline this important
protection. Now let's go and document the condition of the car.
Sign here to agree this report reflects the condition of the
car. Have a nice trip." Bigger gulp.
proper planning, these questions and many more can be addressed
well before the consumer is at the car rental counter. Those who
are in a role to counsel consumers can begin by explaining the
forms of coverage that will be made available for purchase at
the counter. Essentially, rental car providers make the
following four forms of basic coverage available.
- Damage waiver: either
collision damage waiver or
loss damage waiver (LDW)—in addition to waiving
responsibility for collision or theft, this coverage often
waives loss of use and other administrative charges not often
provided by private passenger automobile insurance policies.
Charges for this coverage can range from $9 to $19 a day.
- Liability coverage
available at varying limits: Charges range from
$7 to $14 a day.
coverage after an accident: Charges range from $1
to $5 a day.
- Personal effects coverage:
Charges range from $1 to $4 a day.
For obvious reasons,
consumers who do not own a car are best advised to think three
times before declining any coverage made available by the rental
car company. Unless care has been taken to purchase named nonowned automobile coverage, those renting cars should always
purchase liability protection from the rental car provider, at a
minimum. As we'll see, while alternative forms of coverage may
be available, those who do not have automobile insurance must
proceed with the greatest caution before declining the
protection offered by the rental car provider.
For those who own
a vehicle and have private passenger automobile insurance, there
is strong agreement that accepting the liability and medical
protection offered by the rental car provider only serves to
duplicate the protection already provided by a personally owned
auto insurance policy. Provided the consumer has the benefit of
off premises theft coverage provided by a homeowners/renters
insurance policy, purchasing this coverage would also only serve
to duplicate existing protection. Of the four forms of coverage
made available by rental car companies then, it is the decision
whether to purchase the collision/loss damage waiver that is
most often examined and debated.
Benefits of Purchasing a
"Damages Waiver" from the Car Rental Company
companies do not sell insurance but instead offer to "waive" the
costs they will incur after a theft, collision, or other damage
to the vehicle they make available for rent. Those advising
consumers who own a car with comprehensive and collision
coverage that their personal policy will be available to pay for
damages to a rental car from theft or collision are correct,
only partially correct. Let's agree that being
partially correct is not a good advisory practice.
companies experience many different costs when a car is damaged
or stolen, and those who decline the damages waiver are
contractually accepting the responsibility to pay for those many
different costs. Following are the risks that
are eliminated when purchasing the damages waiver from the
rental car company that are often not covered by other
protection solutions. As a result, transferring these risks back
to the rental car provider by purchasing the waiver is a
protection strategy well worth considering.
- Nickel-and-dime claims: Often, minor scratches,
dents, etc., can result in damages in the hundreds of dollars
and well below the collision deductible on a personal auto
policy, resulting in an out-of-pocket expense for those who
decline the waiver.
- Loss-of-use costs: Damage that results in the rental company alleging the
time it took to repair the car prevented it from earning rental
income for a period of time can result in "loss-of-use" charges.
- Before-and-after costs: The costs that
arise when the value of a rental car becomes diminished after an
accident are rarely covered by traditional personal insurance
policies. They can also be significant.
fees: Purchasing the damages waiver from the
rental car provider will also waive "administrative expenses"
incurred after a loss. Essentially, these are soft costs
incurred after a claim such as storage, claims adjustment
expenses, and towing. While these costs are not often very
significant, they are also not covered by most personal auto
- Loss settlement disputes: Insurance practitioners well understand the challenges
that arise in trying to agree on the value of a damaged car that
has been determined a total loss. The cost the rental car
company requires to replace the car may be far higher than the
actual cash value loss settlement the personal auto insurer will
- Time and aggravation: Among those
who opt to purchase the waiver from the rental car provider, the
reason most often cited for doing so is the "reduced hassle and
peace of mind" factor. Reducing the time and angst of
documenting the condition of the car before and after the rental
is a big benefit.
- Credit card gotcha: Those who decline damages waivers and experience a claim
quickly learn the rental car provider will be applying any
uncovered charges to the credit card used for the rental.
Purchasing the damages waiver eliminates this risk, which can be
- New claim activity: Those who
prefer to transfer the risk of damage from the rental car
company to their auto insurance provider should be reminded that
doing so can have an impact on the terms of their personal
Alternative: Relying on a Personal Automobile
Especially for those renting a car for many days
or even weeks, the cumulative costs of paying for the damages
waiver cause many to decline the waiver and transfer the risk of
possible damages to the insurer providing personal automobile
coverage. Except for a few states, consumers who wish to do so
must have comprehensive and collision coverage on their personal
auto policy. Consumers should be reminded that claims requiring
loss of use, diminished value, administrative charges, and
variances in valuation disputes can be costly and are not
covered by standard auto policies. Knowing about these risks can
help consumers determine if electing to save the cost and
self-insure is a risk worth accepting.
For those who decide to
transfer these risks to their personal auto insurer, there are
at least two national underwriters providing greatly enhanced
coverage for damage to rental cars. Unlike insurers offering
standard coverage, Chubb and AIG Private Client Group provide
coverage for damage to rental cars under the liability (property
damage) section of their automobile policy. As a result,
qualifying auto policies issued by Chubb and AIG Private Client
Group provide coverage not only for collision and theft but also
for loss of use, diminished value, and administrative costs not
normally covered by traditional auto policies. This significant
benefit is often overlooked and partly explains the reason for
the higher cost of the enhanced coverage provided by these
Coverage from Credit Card Providers
assert, "I'm covered by my credit card" would be wise to
reexamine the protection they believe is available to protect
them. First, cardholders should be aware the coverage provided
by any credit card provides collision and theft coverage but not
liability or personal injury protection. And, with very few
exceptions, the collision and theft coverage provided by credit
card companies is secondary to the coverage provided by the
cardholder's automobile insurance provider. For cardholders with
an auto policy that does not provide comprehensive or collision
coverage protection, coverage provided by the credit card
company would be available to assist with physical damage and
theft claims, although many conditions apply. As consumers
likely realize, benefits available to cardholders on the same
network can vary, including the coverage for damage to rental
cars. There is a good amount of information available to those
who want to more closely examine the variances in protection
provided by credit card companies, though it can be quite
Following is a very brief summary of the current
rental car protection available through major credit card
- Visa: Generally viewed as
offering the most generous free benefits. Visa provides rental
car insurance on all of their cards—Standard, Signature,
- MasterCard: Benefits are
also fairly standard, although those who have analyzed the
coverage indicate loss of use is not covered.
Express: AmEx offers the ability to secure extra
coverage for a small fee. It offers free secondary coverage up
to $50,000 ($75,000 on AmEx platinum) but, for an extra fee,
will offer primary coverage with a higher limit and protection
against injury and property damage. Conditions apply.
- Discover: Discover's benefits are quite limited.
Discover does not cover loss of use fees and provides modest
coverage for collision damage up to $25,000. Discover Escape
provides enhanced coverage.
- Diners Club
International: Now owned by Discover Financial,
provides physical damage and theft protection that is
coverage, sparing cardholders the need to
submit claims through their personal auto insurer. Check this
link to review the broad
rental car protection through Diners Club.
A remarkably detailed chart comparing the rental car coverage
provided by the major credit card providers is available through
"Stand-Alone," Enhanced Primary LDW for Rental Cars
Insuremyrentalcar.com offers a stand-alone LDW up to
$100,000 for rental cars damaged or stolen. Costs are
appreciably lower than what rental car companies charge, with
options for daily, single trip, and annual programs. Annual
policies provide a particularly good value for regular users,
with the added advantage of covering US residents for vehicles
rented outside of the United States. Because coverage is
primary, there is no need to submit a claim to your personal
auto insurance company. The policy features a $0 deductible, is
underwritten by Chubb, and appears to be available for purchase
only over the Internet. The actual policy form, available to
review on the provider's website, reveals that broadened
coverage is available to pay for charges alleging loss of use,
diminished value, and reasonable administrative costs.
It is no easy task helping consumers
understand the many risks that arise when renting a car. Also,
explaining the scope and limitations of the various forms of
protection requires an even longer discussion. A common "best
practice" guiding many insurance practitioners is to instead
embrace the broad-brush legal guidance aimed at reducing
exposure to errors and omission claims. Advising all clients to
always accept the coverage offered by rental car companies will
surely reduce an agent's exposure to errors and omissions
claims. Conversely, emboldening consumers who wish to avoid the
cost of damages waivers from rental car companies and advising
"You're already covered, just decline" is an incomplete answer,
To arrive at a better advisory approach, consider
sharing the same insights and perspectives we employ when
renting a car for our own use. Begin by providing a more
complete explanation of the many risks involved. Review the
strengths and limitations of the various forms of protection
that are or can be available. Once the risks and available
solutions are understood, consumers should weigh the relative
costs and benefits of those options and arrive at a decision
that makes the most sense to them. The decision to purchase or
decline the damages waiver may even vary based on the specific
circumstances of each rental. Given the variables and the
personal choices that influence our decisions, it seems wrong
minded to provide those we advise a simple "always" or "never"
answer to this question.
As it concerns the decision to purchase the damages waiver
from the rental car provider, I am most comfortable offering to
others the approach that makes the most sense to me personally.
Renting a car for just a day (or
even a few days)?
- Why not simply remove the
hassle and the possibility of uncovered costs arising from a
possible claim and purchase the damages waiver? This decision
not only eliminates the potential for financial risk but also,
more importantly, the time and aggravation of being involved in
claims disputes between the car rental company and other
- When doing so, be aware of the conditions of
the waiver, especially who can and cannot drive the car.
Renting a car for a period of time that causes the total cost of
buying the waiver to exceed your personal financial pain
- If the daily cost of the waiver
spread over many days exceeds what you are willing to pay,
embrace alternative protection strategies to reduce the risks
when declining the waiver.
- Examine purchasing personal
automobile coverage from one of the few insurers that provide
greatly broadened protection for rental cars.
- Understand the benefits available from your credit card(s) and
rent the car with the credit card providing the broadest
protection. Consider adding a credit card provider offering
- Embrace the simple "best
practice" of using the camera or video feature of a cell phone
to carefully document the condition of the rental car before
accepting and upon returning it. Be sure the images include the
rental car representative who will also be documenting the
condition of the car.
Rent a car with frequency?
broad protection and modest annual fee associated with the
annual plan option for the stand-alone primary coverage
referenced above have a very strong appeal: namely, broad
protection, peace of mind, and savings. While there may be
other plans similar to this one, embracing this protection
solution is wise for those who rent cars with any frequency.