Automobile Rentals – What Every Person Should Know About Insurance Issues


Have you ever stood at an automobile rental counter while traveling staring at a rental contract trying to figure out what the insurance options mean? “Should I buy additional coverage through the rental car company or am I paying for coverage I already have based on my insurance coverage for my own vehicle?”

Consider the following information the next time you rent a car while traveling or need a replacement while your vehicle is being repaired.

Your Primary Insurance Coverage

As a general rule, your automobile insurance coverage on the vehicle you own or lease will cover you on the same terms with respect to repairing physical damage (less applicable deductibles) to a vehicle in an accident and liability coverage concerning potential injuries to third parties.

As a result, depending on your insurance coverage and the various deductibles and limits in the policy you carry on a vehicle you own or lease, many of the “supplemental” coverages offered by the rental agencies are unnecessary and probably a waste of money. However, there is on exception.

Auto Rental Collision Damage Waiver

One exception to the general rule that your primary insurance is adequate to cover your risks of loss in automobile rental situations is a program offered by all automobile rental companies known as “Auto Collision Damage Waiver” or sometimes referred to as “Optional Damage Waiver”. This program is not insurance but rather a contractual provision where a rental company, in exchange for a fee usually in the form of a daily charge, agrees to assume all of the risk for any physical damage to a vehicle while in your control as well as waiving or covering payment of other fees usually buried in the rental contract fine print such as administrative fees, loss of use fees and surcharges imposed by a rental company when a vehicle is damaged.

In Summary

Purchasing a damage waiver from the rental company essentially takes away any chance your own insurance company would have to pay any claim for physical vehicle damage and the program insures that you will not have to pay any deductibles, administrative fees, loss of use charges and other surcharges that your own insurance would not cover. The “damage waiver” provision does not apply to liability issues with respect to injuries to third parties but, rather, only the physical damage to the vehicle.

Let’s Consider An Example

If you rent a vehicle on vacation or for business and you are involved in an accident resulting in $5,000.00 damage to the vehicle, your financial responsibility would be as follows:

  • Without Physical Damage Waiver – if you opted out of purchasing the “physical damage waiver” program, then your insurance company would receive a claim from the rental company to repair the vehicle. You would then have to pay whatever deductible you have under the terms of your primary insurance policy and you would be responsible to pay administrative fees, loss of use charges and any other contractual charge included in the rental contract which, on average, can total over $1,000.00. In addition, don’t forget that because an accident claim is submitted to your insurance carrier, that the accident will be on your record with the insurance company for a period of three years often resulting in increased premiums of $300.00 – $400.00 per year for three years. All total, the accident could cost you over $3,000.00 out-of-pocket based on your deductible, the contract fees to the rental company and the future increased insurance premiums. Your insurance carrier would pay for the $5,000.00 in damage to your vehicle less your deductible.
  • With Physical Damage Waiver – given the same example with $5,000.00 of damage to the vehicle, if you purchased the “physical damage waiver” (usually costing $15.00 per day), you simply return the vehicle to the rental company and walk away. There is no claim filed with your primary insurance carrier and all other contractual costs and deductibles are waived. Based on the fact no claim was filed with your insurance company, there are no increased premiums. Assuming a five (5) day rental period, your out-of-pocket costs given the same accident example would be $75.00 (5 x $15.00/day). Your insurance company would pay $0 for repair to the damage to the vehicle, you would pay $0 in out-of-pocket costs and the rental car company would assume and pay for all costs to repair the rented vehicle.

Check Your Credit Card

If you pay for your car rental with a credit card,many credit card companies offer the physical damage waiver as a benefit of your card membership. This would allow you to decline purchasing the program from the auto rental company while still enjoying the protection from your credit card company.

Dan A. Penning