Insurance 101: 3 Reasons to Purchase Rental Car Insurance
March 18, 2017
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Insurance 101: 3 Reasons to Purchase Rental Car Insurance
Although most collision damage waiver or loss damage waiver fees are considered outrageous, most consumers should consider purchasing them at least for short- term rentals.
Why? Because rental car companies charge ever-higher fees and penalties for losses and expenses which are not covered by most auto policies or credit cards. The following are 3 reasons to purchase rental car insurance;
1. Loss Valuation
The value of a rental car, according to virtually all rental agreements, is determined solely at the discretion of the rental company and may be significantly different from the market value “ACV” basis used by most auto policies. The “industry standard” (ISO) personal auto insurance policy covers the lesser of the “actual cash value” (market value) of the vehicle or the amount “necessary” to repair or replace the damaged property.
The rental agreement may very well contractually obligate the consumer to reimburse the rental agency for the “full value” (whatever that is) of the vehicle. If the renter’s insurance policy has a “betterment” clause, the insurer might not pay the “full value” and the renter could be responsible for the difference.
2. Loss Settlement
As implied above, there may very well be disagreement over the value of the vehicle or the amount charged for labor and materials to repair the property—an Appraisal clause may be invoked by the insurer with its accompanying costs covered partially by the insured/renter.
More importantly, the auto insurer has the right to “…inspect and appraise the damaged property before its repair or disposal”—the rental company may choose to make the repairs immediately, potentially resulting in a lack of auto insurance coverage because of failure to comply with the condition cited above.
3. Indirect Losses
The consumer most likely will be responsible for the rental company’s loss of rental income on the damaged unit. Most auto policies have, at best, daily and maximum caps for this indirect loss and some may pay only for loss of income resulting from theft, not collision or other causes of loss.
In addition, many rental companies make the renter responsible for loss of use without regard to fleet utilization rates. If so, the renter may be charged even though unused rental vehicles are sitting on the lot.
Insurers may not be willing to pay for charges they don’t feel represent a true loss of income by the rental company.
Most alarmingly, rental car companies are increasingly inclined to charge for “diminution of value,” an indirect loss that is not covered by most auto policies’ physical damage section (nor most credit card coverage). We have seen documented examples of these charges for amounts in excess of $5,000 – $7,000 and heard of one that was allegedly $15,000 on an upscale SUV rental.
If you still have any questions after reading this article, feel free to call Excalibur Insurance Group before you rent a car.
