Something to Think About the Next Time You Rent a Car
You just got off the plane. Now you are at the rental car lot to pick up your car for vacation
Should you buy the rental car insurance?
In past years when clients called to inquire as to whether they should take the rental car companies insurance, we generally said if you have comprehensive or collision insurance you probably don’t need to pay their price just to waive the deductible. However two revisions in rental-car contracts have greatly increased the risk of not taking their coverage.
The first one is called Diminution in Value. Rental car companies have begun holding the renter liable for a “diminution of value” charge when a rental car has significant damage. This charge represents the reduction in a vehicle’s market value due to its having been in an accident. The theory is when the repaired car is eventually sold, it brings a lower value.
When a renter returns a vehicle in damaged condition, he or she receives one bill for repairs and another for diminution in value. Most auto polices cover the repairs, but few cover diminution in value. Since 1999 most personal auto policies have excluded coverage for this.
There have been a lot of court cases over this and the bottom line is they upheld that the policies don’t cover this type of loss. By now you are probably thinking that your credit card covers this. Some credit cards do cover damage to cars rented with them, but only for the actual cost of repairs. This is basically the same as your personal auto policy.
The following language is found in a contract of a major rental car company. “If the car is damaged, you will pay our estimated repair cost, or if, in our sole discretion, we determine to sell the car in its damaged condition you will pay the difference between the car’s retail fair market value before it was damaged and the sale proceeds.”
A recent Michigan case illustrates this practice. The insured rented a Ford Free Star with an estimated market value of $26,500 and brought it back damaged. The cost of repairs, loss of use and the appraisal fee totaled $7,800. The rental company chose not to repair the vehicle but to sell it at a salvage auction, where it brought $11,700. The renter received a bill for about $14,800, or the difference between the before and after values. The renter’s auto policy paid only the estimated repair costs, leaving a balance of almost $7,000, which became the responsibility of the renter. That’s a significant blow to the old pocket book.
The other gap in coverage that you may incur if you choose to use your own insurance instead of the rental car coverage is loss of use. That is for the time the rental car company can’t rent the vehicle while it is being repaired. You are somewhat at their mercy on that, because the time can vary, depending on availability of parts. Etc.
If you decide to go ahead and use your own coverage, be sure and make a thorough inspection of the vehicle before you take it and have the rental agent notate any damage on the contract. Always check to be sure the spare tire is in the unit. Also make sure the license tag isn’t expired. This is particularly true when the rental car has a paper tag on it.
When making your decision as to whether to take the collision waiver or not, remember even that is not 100%. There are a couple of exclusions that you need to be aware of. First they don’t cover you on an unpaved road if you wreck and also you can void the coverage if you are intoxicated. The good news is if you have full coverage on your own car it will pick up the repair cost. (For the record we don’t recommend driving intoxicated on a gravel road in a rental car just to test your insurance).
Fortunately most accidents aren’t major so you have to assess your personal risk tolerance when making the decision to take the waiver or not.