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Rental Car Coverage: Is It All The Same?

Rental contracts are changing all the time, and differ by rental car company. How can you be sure your policyholders are going to be covered in the event of a loss?

Basically there are three situations your insured is put in if they are involved in a loss while they are driving a rental vehicle. The rental car company can choose to A) sell the vehicle in damaged condition, B) repair the vehicle, or C) replace the vehicle.

According to some rental car contracts, if a vehicle is sold in damaged condition, the renter may be held responsible for the difference between the car’s retail fair market value before it was damaged and the sale proceeds. This is often more than the cost to repair the vehicle, which is what most automobile insurance policies cover. Let’s look at an example:

Robert Robertson has an automobile policy with Auto-Owners. While on vacation he decides to rent a car, and the next day is involved in an accident with that rental car.

Prior to the accident, the vehicle was worth $20,000. Rather than repairing the vehicle for $4,000, the rental car company sells the vehicle in its damaged condition for $13,000. The rental agreement held Mr. Robertson responsible for the difference between the value of the rental vehicle prior to the accident and what the rental car company received for selling the vehicle in damaged condition.

Mr. Robertson is now liable to the rental car company for $7,000 (the difference between the vehicle’s value before and after the accident).

The Auto-Owners automobile policy would cover the damage to the vehicle ($4,000) as long as Mr. Robertson has at least one automobile scheduled with comprehensive and collision coverage on his automobile policy (his policy will also cover the loss of use to the rental car company). Mr. Robertson would be responsible for the additional $3,000 per his rental car agreement.

This additional amount owed would be covered if the Auto-Owners automobile policy has the Personal or Commercial Automobile Plus Package, rather than just the cost or repairs.

Now, Let’s go back to our example with Mr. Robertson. The same vehicle, rather than selling in damaged condition, is repaired. The repairs again are $4,000, which would be covered under the Auto-Owners policy. The vehicle was worth $20,000, but since it is now repaired after being damaged, the value of the vehicle is perceived to be only $17,000.

However, the rental car company now also charges the insured $3,000 for what it considers “diminished value,” or a perceived reduction in value of that vehicle. We recently enhanced our Personal Automobile and Commercial Automobile Plus Package endorsements to provide coverage for diminished value on a rental automobile. This enhancement was put into effect for all current policyholders that have the Plus endorsement, as well as those that ass the Plus endorsement to their policy.

Finally, if the vehicle is involved in a total loss and the rental contract requires replacement of the vehicle with a new comparable vehicle, coverage is included under the automobile policy as long as an automobile on the policy is insured for both comprehensive and collision coverage.

The Personal or Commercial Automobile Plus Package not only provides Rental Automobile Gap coverage as described in the above examples, but also many other coverages. The rental coverages described above may differ or may not be available in all states. If you have any questions on rental coverage or the Plus packages, please contact Valley Insurance Agency.