Is Rental Car Insurance Necessary?

Michigan Insurance Agent Kim Gibas

Written by Kimberly Gibas CIC, CAWC

One of the most asked questions I hear from both individuals and business owners is, “If I rent a car, do I need to purchase the insurance or is it covered under my Auto Policy?”

The answer is yes*

If you have full coverage, your insurance will extend to a temporary replacement.  However, you need to be aware of the situations that may not covered under your insurance policy or by your credit card company. In the event of a loss regarding your rental car, you may be personally responsible.

Rental Car Insurance Coverage

Insurance Agents will usually tell you that purchasing the additional insurance offered through a rental car company is a good idea, even if you maintain full coverage on your Michigan Auto Policy. Here’s why:

  • Diminished value – The reduced value of a vehicle due to accident history. If you pull a CarFax report on a vehicle that has been involved in a crash, the value of that vehicle will be reduced. The language that is built into most rental contracts states that you assume responsibility for the “diminished value” in the event of a loss. 
  • Claim expenses the rental company incurs to investigate the accident.
  • The rental company’s attorney or administrative fees.
  • Loss of Use – The daily rental rate the car rental company couldn’t make while the vehicle is being repaired or sold at auction after the accident.

The Reason

With the current state of supply chain disruption, it may take 2-3 times longer than normal for the Collision Shops to get parts in to make the necessary repairs to the vehicle, in the meantime the rental Car Company cannot rent that vehicle, they will want to collect the daily rate they would have received if the vehicle was still in their inventory.  Most insurance policies will not cover this.

The next time you rent a vehicle, read the entire contract, contact your Insurance Agent and Credit Card Company, and ask specific questions about coverage scenarios and if coverage is provided for these situations.