Although the fees can be considerable, it may be a good idea to purchase a collision damage waiver the next time you rent a car. You may believe you have enough protection from your Personal Auto Policy (PAP); however, that may not be the case. Your PAP usually covers the lesser of the actual cash value of the car or the minimum amount to repair or replace it. Your contract with the rental car company may require you to reimburse them for the full value of the vehicle. You would have to make up the difference out-of-pocket. The PAP also does not pay for any increased value of new parts replacing old ones, or any diminution of value, meaning if the market value of the vehicle after repairs is less than that before the accident, you would have to make up the shortfall.
Another area where the waiver can be of great importance is in the settlement process. Your insurance company has the right to inspect and appraise the damaged car before repair or disposal. However, the rental company is not bound by the terms of your policy, and it may opt to complete the repairs immediately. This would result in your not being covered because you didn’t comply with the terms of the policy.
The rental agreement may require immediate reimbursement for damages. Without the waiver, they could charge your credit card. This can create a significant debt and put you over your credit limit.
Rental agreements often make the renter responsible for any loss in value beyond normal wear and tear, regardless of the cause or who’s at fault. Your PAP doesn’t cover this contingency unless you insure at least one vehicle for both collision and other-than-collision coverage.
You could be responsible for the rental company’s loss of income on the damaged car. Your policy has limited coverage for these charges. The same is true for any administrative or loss-related expenses such as towing, appraisal, claims adjustment, and storage fees you may be charged.
Your PAP is considered excess coverage if:
- Any coverage is provided by the owner of the auto.
- There is any other applicable physical damage insurance.
- There is any other source of recovery applicable to the loss, such as travel policies, credit card coverage, etc.
This can create a controversy over who pays, which can result in litigation. Keep in mind that many states have statutes that may govern this eventuality.
The PAP does not provide physical damage coverage for vehicles that are not private passenger cars, pickups, vans, or trailers. The use of covered vehicles is limited to the U.S., its territories and possessions, Puerto Rico, and Canada. If you rent a trailer, coverage is usually limited to $500.
The PAP may have limitations on use of vehicles that are not excluded by the rental agreement collision damage waiver. The PAP may also exclude certain drivers or may apply only to designated individuals. The collision damage waiver will probably also only apply to certain individuals, but operators for which no PAP coverage is available may be protected under the rental agreement by adding them as designated drivers.
The PAP will typically include a deductible in the range of $100-$500 or more. In addition, payment for damage to a rental car may result in a significant premium increase because of surcharges or loss of credits. Having a collision damage waiver will protect you from paying increased premiums.