Should I buy the rental car damage waiver?

As agents, we are often asked several difficult questions about auto insurance coverage and how the coverage will respond in various situations.  One of the most frequent questions we receive is purchasing the collision damage waiver when renting a car.

You know the routine. You just got off of the plane for your vacation.  You’re ready to hit the beach, but first, you have to go through the dreaded conversation at the rental car desk.

“Would you like to upgrade to a bigger car?”

“Don’t need it.”

“Would you like to rent a GPS?”

“Brought my own, thanks.”

Now, the biggie:  “Would you like to pay for the collision damage waiver?”

Before you quickly reject this one as well, we want to give you 5 reasons below on why you should strongly consider purchasing the collision damage waiver the next time you rent a car.

1.    Loss Valuation and Settlement. Did you know most rental agreements allow the rental car company to determine the vehicle’s value solely at its discretion if you are involved in a claim?

So if you are in an accident that totals a vehicle that is a few years old, the rental car company can still charge for a brand new vehicle. A standard auto insurance policy only pays the “Actual Cash Value,” which means you will be stuck with the difference in value.

2.    Indirect Losses.  If there is an accident, you will most likely also be responsible for the loss of rental income incurred by the company while the damaged vehicle cannot be used.   And, while many auto policies will provide some coverage for this, there have been many cases where individuals are still charged thousands of dollars above what their insurance company would pay for.

3.    Administrative Fees.  If you damage a vehicle, there is a good possibility the rental car company will add additional charges for expenses such as towing, storage, and claims adjustment calling them “administrative fees.”   Your insurance policy will not provide coverage for these expenses, either.

4.    Diminution of Value.  This is another fee the rental car company can add on if the damage to the vehicle is over a certain amount.   For example, if a rented vehicle sustains more than $1,000 damage, many companies will charge an additional percentage fee (typically 25%) because they figure the sustained damage has now decreased the value of the car and their ability to sell it.   Your auto policy isn’t picking up this fee.

5.    Loss Payment.   If you happen to damage a vehicle, it is common for the rental car company to immediately charge your credit card for the damage to the vehicle.  This can create a huge mess as it could potentially max out your credit card. This can create some real headaches with your insurance company.

One of the provisions within your policy is that the insurance company needs to inspect the vehicle so they can accurately calculate a damage amount.  However, the rental car company may not wait for an adjuster, and it is common for them to charge your credit card and begin repairs immediately.

The problem is that the provision within your insurance policy mentioned above may give your auto insurance company the right to deny the claim as they were not allowed to inspect the vehicle properly.

Between just the fees associated with damaging a vehicle, the valuation process, and the payment mess, you can see how you could easily be out thousands of dollars.   By not signing the waiver, you may potentially be setting yourself up for some huge personal expenses.

Recommendation:  We know you don’t want to pay more money for the waiver, but believe us, if you happen to damage a rented vehicle, you’re life will be a thousand times easier than if you hadn’t signed and paid for it.

Also, please double-check to see how your own insurance policy will react to some of the claims scenarios above.

Disclaimer: The above information is to be used as guidance only, and it is not to be considered definite in any particular case.   Every policy is different, and you need to read through your policy and consult with your agent to determine how your coverage will respond.  The information provided is based on the ISO standard Personal Auto Policy in force in most states. Policy provisions and laws vary from state to state, and they can change at any time.  Due to the brevity of this article, we cannot analyze every possible loss exposure and exception to the general guidelines above.