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Insure This By Bill Velin


Rent a Car at Your Own Risk! W


ith travel (both domestic and abroad) becoming more common than ever before, the exposure of rental vehicles is also increasing. We all take va- cations, travel to conventions, and make business trips. And the preferred mode of transportation during these times is most often a rental car. We normally do not think twice about declining to insure many of the exposures (both direct and indirect) that exist when renting a car – not only because we think our Personal Auto Policy (PAP) will cover loss and/or damage to a rental car exactly the same as they would cover that same damage to our personal car. However, renters have no idea of the gravity of the exposures that really do exist when renting a car. Although the comprehensive and collision damage fees charged by rental companies usually are considered outra- geous, you are best advised to purchase this coverage for all short-term rentals. This is becoming even more important as rental car companies charge ever- increasing fees and penalties for occur- rences not covered by a Personal Auto Policy. Let’s start by discussing some of the di- rect exposures prevalent on rental cars: 1. Loss Valuation. The value of a rental


car, according to virtually all rental con- tracts is determined solely at the discre- tion of the rental company and may be significantly different than the “ACV” ba- sis used by most auto insurers. Most Per- sonal Auto Policies cover the lesser of the “actual cash value” or the amount “nec- essary to repair or replace the damaged vehicle. The standard rental contract however may very well contractually obli- gate you to reimburse the rental compa- ny for the “full value” of the vehicle. 2. Loss Settlement. Your personal auto insurer has the right to “inspect and appraise the damaged vehicle (rental car) before repairs begin. However, the


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rental car company may choose (again by virtue of the rental contract) to effect repairs to the damaged vehicle imme- diately, potentially re- sulting in a lack of cover- age from your personal auto insurer because of failure to comply with the conditions required by your personal auto policy.


3. Loss Payment. The rental contract may require immediate reimburse- ment for damages – even to the point of charging your credit card. This could create a significant debt or max out your card – ruining a vacation or business trip. 4. Loss Damage Waivers (LDW) vs. Collision Damage Waivers (CDW. The rental contract usually requires reim- bursement for more than just collision – making you responsible for any loss in value beyond normal wear and tear, regardless of fault. Obviously your per- sonal auto policy must include collision coverage for this coverage to be available for a rental car. If the rental contract in- cludes a Loss Damage Waiver (not just a Collision Damage Waiver), your person- al auto policy must also include compre- hensive coverage in order to have that coverage on the rental vehicle. Not only do you assume the above ex- posures, but you also assume a couple of “indirect” exposures that are even scarier. 1. Loss of Use. If you damage a rent- al vehicle (even if you have a personal auto policy with both comprehensive and collision coverage), it will take time to repair or replace the damaged rental car. During that time, the rental compa- ny will be losing “rental income” for that specific vehicle. For example, if the rent- al company makes $1,500 per week rent- ing that vehicle, and it is out of service


being repaired for two weeks, a $3,000 charge will show up on your cred- it card.


2. Diminution of Value. If you damage a rental vehicle and it is repaired, that vehicle will be worth less at the time of sale since it was involved in an acci- dent. That amount that it is worth less is known


as “diminution of value.” For example, if you do $20,000 of damage to a rental vehicle, they may come back to you after the repairs are made and advise that the vehicle is now worth $3,500 less than it would have been had it never been in- volved in an accident, and of course that $3,500 will show up on your credit card. Both of the above indirect exposures


are not covered anywhere in any Personal Auto Policy, so the only way to get these covered is to purchase the comprehen- sive and collision coverage (LDW and CDW) from the rental company when you rent the vehicle.


And remember – you do not have to take liability coverage when you rent the car as long as you have liability on your personal auto policy and that always transfers to the rental car. However, you should always purchase the comp and collision from the rental company to avoid the direct and indirect exposures that exist in every rental situation. Pass this along to all employees that travel so they know what and what not to pur- chase regarding insurance when renting a car. 


Bill Velin is Vice President with Assured Insurance Group/Lee F. Murphy Insurance, one of the largest insurance agencies in the country, representing a variety of carriers. To benefit from ARA’s


national Insurance Program, contact Bill at (651) 294-0705 or billv@leefmurphy.com. Visit www.leefmurphy.com.


March-April 2018 • AUTOMOTIVE RECYCLING


iStockphoto.com/kzenon


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