I often am asked whether someone’s auto policy covers them when they rent a vehicle while out of town on vacation or for business. The answer to this question is yes. And no. Typically your auto insurance policy will provide coverage for any vehicle that you are using as a replacement for the vehicle you have listed on your policy. A rented vehicle fits this description and so your policy provides the same coverage available to the cars on your policy. This means that if you maintain a policy that provides for liability only, you will have that same level of coverage available in the event that you are in an at-fault accident. If you have full coverage on your vehicle, then that level of coverage will also be available for the rental car.
There are, however, two potential gaps in coverage that you should be aware of:
1. Loss of use: In the event that you have an accident, the car rental agency can hold you liable for the rental values that they lose due to the vehicle being in the shop for repairs. This is termed “loss of use”, and
2. Diminished value. This is the calculated reduction in resale value to the vehicle as the direct result of the accident you are involved in.
Most insurance policies specifically exclude converge for these two items. However, many credit card companies provide supplemental insurance when you use their credit card to pay for the rental purchase. We recommend that you contact your credit card provider PRIOR to your travel and review what they provide. This insurance is considered “excess” and will only pay once your own policy’s coverage has been exhausted. Still it is excellent coverage to have if you have one of the gaps mentioned above.
So in the end, if the thought of not being covered for every conceivable loss to your rental car will keep you up at night and ruin your vacation, take the collision damage waiver (CDW) offered by the rental agency and sleep well. On the other hand, if you have full coverage on your personal auto insurance policy and have contacted your credit card provider to establish what excess coverage may be available, you may choose to skip the CDW and save yourself a considerable sum of money.