It’s vacation time again and lots of folks will be heading out to the hinterlands in search of rest and relaxation. Some of those will drive and they need pay no attention to this except for future reference. Those who will be renting cars at their destination should pay heed. The following applies only to rentals in the United States.
It’s an ongoing question at the rent car counter: Do you take the rent car company’s coverage or not? It’s usually very expensive, sometimes as much as the daily rental for the vehicle, so should you take the coverage and almost double the cost of your car rental?
First of all, there are several types of coverage you might be offered. There’s the LDW or Loss Damage Waiver. Sometimes it’s called CDW or Collision Damage Waiver. Then there may be something called SLI, Supplemental Liability Insurance which covers anything or anyone you may hit. Other add-ons might include personal accident insurance, which, some auto rental websites state covers an ambulance ride for each person in the car, along with medical expenses up to $2,500 per person.
The SLI and personal accident insurance may be unnecessary if you have high limits plus a personal umbrella on your personal auto policy and have medical insurance. Those are pretty much optional depending on your sensitivity to risk.
That leaves the LDW or CDW. This deserves a much closer look.
I’ll start out by saying you have a very unusual circumstance when you rent a vehicle. Your responsibility to the car rental agency for their vehicle is a contractual obligation; it’s not about your negligence, it’s about your agreement to return to them a vehicle in the same physical condition as when you rented it.
Because your obligation is contractual, and there is no standard contract, there is no way to analyze exactly what you might obligate yourself to but we can make some sound generalizations.
A loss damage waiver is a contractual agreement between the rental company and the customer not to hold the customer responsible for damage to the rental vehicle.
Without such a waiver, the rental contract usually requires the customer to agree to be responsible for damage up to the full retail value of the car as well as possible administrative fees, loss of use, and, depending on how badly the vehicle is damaged, for diminished value as well.
This LDW is not insurance but a waiver of the rental company’s contractual right. Many customers purchase the LDW to eliminate uncertainty over adequacy of insurance coverage and may feel the LDW offers a certainty the coverage is provided and thus cut down on the "hassle factor." This is not necessarily true. Coverage provided by the contract, including the LDW, may be voided by certain actions of the customer that violate the contract.
Some ways to void coverage provided by the car rental company: The authorized driver’s intentional damage or willful or wanton misconduct; operation of the vehicle while legally intoxicated or under the influence of any illegal drug (this restriction may apply to the use of pre scri ption drugs); operation of the vehicle in violation of the law; use of the vehicle for hire (carrying other people’s property for a consideration); use of the vehicle for towing/pushing; operation of the vehicle by an unauthorized or underage driver; or operation of the vehicle on an unpaved road.
So, a word to the wise: Read and be familiar with the terms of the rent car agreement.
Most people have a Personal Auto Policy issued by a company authorized to do business in Texas.
There are, however, two brands of policies and it makes a big difference which one you have. One is a Texas PAP; the other is called an ISO (Insurance Service Office) PAP. Of the two, the Texas brand is very much preferable.
The Texas PAP covers damage to the rented vehicle in the liability section of the policy to the extent losses other than collision are considered an "auto accident" (not defined in the PAP), damage caused by fire, theft and weather-related perils are covered as well. Thus, obligations assumed under a car rental contract are covered with no deductible. That includes any administrative fees, loss of use or diminished value.
On the other hand, The ISO personal auto policy covers damage to the rented vehicle in the physical damage section of the policy. Physical damage coverage for non-owned autos is provided only if physical damage coverage is purchased on at least one auto scheduled on the policy. Coverage on a non-owned auto then includes the broadest coverage applicable to any auto scheduled on the policy. There is a problem between insurance policy and rental agreement: Insurance pays actual cash value; the cost to replace less depreciation. Many rental contracts require replacement cost. In the event of a loss, if someone relied only upon their insurance policy, they would be responsible for any difference between the two valuation methods.
The policy also only provides up to $20 per day (maximum $600) for additional expenses for loss of use charged to the renter under the terms of the rental agreement. Administrative fees and diminished value would not be covered.
Because coverage in both policies is limited to private passenger autos, trailers, pickups and vans, there is no coverage for damage to a rented truck larger than a pickup or van used for any purpose – such as a U-Haul truck rented to move household belongings. Another concern might be the insured’s limit for property damage liability – is it sufficient to cover cars rented?
Do not underestimate the resolve of the car rental companies if a vehicle is damaged. I read of a man in Hawaii that turned in a damaged vehicle and tried to board his plane that was about to leave the terminal. The rental agency had him arrested and he missed his flight! In another case I read, the rental company charged the entire replacement cost of the vehicle to the person’s credit card, over $30,000, and the charge immediately locked up his credit.
What about credit cards? First, credit card companies do not reserve a lot of money to cover claims.
This is an indication they do not expect too many claims, plus violation of the car rental agreement usually voids their coverage.
They are excess to any insurance you might have available and they also limit coverage by having numerous exclusions.
Some cards, for example, exclude pickup trucks, trailers, or vans unless used for personal or business use. SUVs, recreational vehicles and 4 wheel drive vehicles when used off road might not be covered. Waivers purchased from the rental agency usually do not have a deductible. Most insurance programs have deductibles, which just add to the cost of the claim.
My advice? Take the LDW or CDW and don’t look back. Consider the coverage provided by your Personal Auto Policy as backup coverage in the event you should void the rental company’s.
All it takes is one accident and the cost of that LDW pales in comparison.
