You're standing at the rental car counter - do you buy or decline the insurance coverage they offer?
A client recently called me while she was standing at the car rental counter at LAX. She wanted to know if she should buy the insurance they were offering. I could hear people in the background. Not pretty.
To help educate my fellow MCC members, I offer the following as it pertains to rental car insurance. Your safest bet is to bite the bullet and buy it - all of it. If you have full coverage (comp & collision) on your personal auto policy, the physical damage portion will follow to the rental car. Discuss the loss scenario with your agent. But there are a few items that are not commonly covered by your personal auto policy. Those items are called "loss assessments". Loss assessments include loss of use from the rental car company's point of view and diminished value.
If you damage a rental car, the car is obviously out of commission for a number of days while it is being repaired. The rental car company is thus losing money and will likely charge you for the loss of income. This can add up quickly. The rental car company will also likely charge you for diminished value. When it is time for the rental car company to sell the vehicle, they will take a loss on the auto due to the damage.
Some people choose to buy only the loss assessments coverage and rely on their personal auto policy for the physical damage (if they have the coverage). However, you still may want to buy the physical damage portion as well. The rental car company will likely require confirmation from your auto insurance company on the spot. For me, on the spot usually means after hours.
What does the rental car company have to insure payment? Your credit card. I have heard of one Michigan driver who did not take the coverage and have a $6,000 charge show up on his credit card.
Check with your agent, a few companies are starting to offer loss assessments coverage. Check your major credit card contract as well to see if it offers loss assessments coverage. Questions? Give me a call.
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NEVER!
I have good friends that work for a large car rental company and they all say that it is the biggest rip off in the world!
Opt to use your own insurance and have some piece of mind...
I fly out often to various locations in Florida and Vegas and rent a car every time - NEVER have I got the insurance and have always opted to use my own as my friends working there have directed me to.
Thanks,
Keith Stonehouse
Keith -
I admire your conviction. This is a popular topic in the insurance education and higher insurance certification classes. It is often recomended that you buy the coverage from the rental car company, especially in regard to diminished value.
Rental car contracts are quite complex. In them, you will often find legalese in regard to diminished value. Terms like "replacement cost" and "cost new" are often used. As an example, let's say you total a rental car with 5,000 miles on it. The rental car company is likely going to want your insurance company to pay the replacement cost or cost new of the vehicle as it is stated in their contract. Your insurance company is going to pay ACV, the actual cash value of the car, thus leaving a gap that could add up to thousands of dollars.
Ealier I spoke of some credit card companies offering loss assessment coverage. I believe some credit card contracts specifically state that they will not cover diminished value, though.
One of our clients who chose not to take the coverge recently damaged a rental car and had a charge of $1,500 show up on his credit card for loss of use while the car was being repaired.
Take the coverage or self-insure. We always recommend taking the coverge.
On a lighter side, maybe we can get Charlie and Terry to go out and roll a rental car at local test track for demonstrational purposes.
Barry
Keith I understand your point of it being a rip off, but I 100% agree with Barry on this. We have researched this topic for our clients that travel as well and have found it difficult to cover the two things that Barry has brought up. Sometimes your credit card will provide coverage for the two points brought up, but not necessarily. While the vehicle is getting repaired in the event you damaged it, you'll most likely be responsible for the Loss of Rental Income they have. In the event you total the vehicle, your insurance company and the rental company may disagree to the value of the vehicle; if they can't come to an agreement you are left responsible for the gap they disagree on.
I would imagine when they say purchasing the insurance is a rip off, they mean that they rarely see an accident in the rentals. Overall, the charge for the insurance on the rental agreement is a big profit center for the rental companies, and it isn't cheap in comparison to how much the actual cost of the rental car is. It's not likely that it would happen, but it could!