Is Purchasing Rental Car Insurance Really Necessary?

The question often arises as to whether to purchase insurance coverage from the rental car company when renting a vehicle for personal or business use.   To make this decision, you need to know what coverage you have through your existing auto insurance policy and/or through your credit card.     

Rental car companies tout the fact that purchasing rental car insurance coverage from them will save you from incurring any out of pocket expenses in the event of a loss.  The rental car company is basically trying to sell you collision/comprehensive coverage (not liability insurance) for the rental vehicle.  If their vehicle is returned to them with damage, they will hold you responsible for that damage, regardless of fault. 

If you carry collision and comprehensive coverage on your auto policy, then that coverage will apply to the rental vehicle.  You would still be responsible for your deductible, however.  When you purchase the insurance from the rental car company, there will be no deductible.   

When the damage is caused by the negligence of a third party, your insurance company will pay for the damage to the rental vehicle, less your deductible;  and then subrogate against the responsible party to recover what was paid by your insurance company for the loss.  Your deductible would then be returned to you once the funds are successfully recovered from the responsible party. 

Although the rental car company is required by law to carry liability insurance on their vehicle, the limits are typically only the state’s mandatory minimum limits.  The liability limits on your auto policy would be excess over the rental car company’s liability limits. 

When the rental car company submits an invoice to you for the damage to the rental car, there are often additional charges beyond just the cost of repair to the rental vehicle.  They charge for loss of use as well as administrative fees.   While your auto policy will cover the vehicle’s repair costs and its loss of use, the policy will not respond to the administrative fees, which are typically $100-$150.  The administrative fees would not be charged to you if you purchase the insurance offered through the rental car company.  However, we have found that these fees can often be negotiated or removed altogether. 

A number of major credit card providers also automatically offer rental insurance coverage to their cardholders when the card is used to secure a rental vehicle.  This coverage is normally excess over any other available insurance or reimbursement.  It is coverage that can usually be applied against your deductible, or other covered out of pocket expenses that are incurred in the event of a loss.        

One area of concern where particular attention should be asserted is in utilizing a personal credit card when renting a vehicle for company business use.  We are seeing a trend whereby coverage under the business auto policy is being strictly interpreted for “Covered Autos”.   The standard Business Auto Coverage Form states that it will cover “Only those autos you [emphasis added] lease, hire, rent or borrow.”   The argument by many carriers is that “you” refers to the Named Insured shown in the policy Declarations, and not its employees.   Even though an employee is renting a vehicle for business use, when a personal credit card is used to secure the rental vehicle, the contention is that it is the employee who is renting the vehicle, and they are not the Named Insured on the Business Auto policy.   

This problem can be easily overcome by either using a corporate credit card when renting a vehicle for business use; or by securing the appropriate endorsement to broaden coverage for this type of situation.  The Commercial Automobile Broad Form Endorsement does extend coverage for any auto that is rented by an employee on behalf of the employer and at the employer’s direction.