Does Your Auto Insurance Follow You When You Rent a Car?

I can’t tell you how often I’ve heard this question. And the answer is yes … AND no!

Item 1

Under your PERSONAL auto insurance policy, the broadest coverage applies to the cars you own and insure on the policy. While coverage does follow you when you drive certain types of cars you don’t own, that coverage is limited. Most BUSINESS auto insurance policies do NOT follow the business or its employees when driving non-owned cars–unless the business has specifically purchased this coverage.

Item 2

When you rent a car, you sign a contract. That contract contains all kinds of terms and conditions. If you don’t read the contract, you don’t know what those terms and conditions are. If you don’t show the contract to your insurance agent, he or she doesn’t know what they are, either.

Regardless of whether you or anyone else reads the contract, you are still bound by its terms once you sign it!

Other Items of Note

I’ve read LOTS of auto rental agreements and ALL of them include terms that surprise most people who sign them, such as:

  1. You agree to be legally responsible for anything that happens to the car, or resulting from the car, during the term of your agreement. This agreement applies even if you would not otherwise be legally responsible under law.
  2. You agree to replace the car at a value determined by the rental car company if it is destroyed  (this includes numerous fees and charges the rental car company also determines). Unfortunately, your auto policy usually only provides coverage at book value, which is generally much less than the amount demanded by the rental car company.
  3. You agree that your insurance policy will pay first, before all other insurance policies pay, in the event of a claim. Unfortunately, the auto policies in most states say they’ll pay AFTER the rental car company’s policy pays first.

So, what does all this mean? Here are some examples of the three points I just mentioned:

  • When driving a rental car you are the middle car in a 3-car accident. Although the person who hit you from behind is legally responsible for your damage and damage to the car it pushed you into, when you signed the rental agreement, you agreed to be responsible for the damage to your rental car and the car you struck.
  • Your rental car is torched while parked in the lot at Disney World. The rental car company says the car’s replacement value is $33,000. However, your insurance company says it will only pay the car’s actual cash value (i.e., book value) minus your deductible, or $21,000. You signed the contract, so you’re legally responsible for the $12,000 difference.

In most states, your auto insurance company will not make payment for damage to the rental car until AFTER the rental car company’s policy pays first. It will eventually pay, but it could take months…

Trust me, the rental car agreement contains other provisions that disagree with your auto policy–these are just three of the big ones. If you have any questions, ask away…

Published by

Linda McHenry

Linda is an insurance CE provider, course developer/writer, and instructor. She founded Faulkner Education Services in January 2006. She is also a novelist.

2 thoughts on “Does Your Auto Insurance Follow You When You Rent a Car?”

    1. Tricia,

      My recommendation is to buy the most comprehensive collision damage waiver (CDW) or loss damage waiver (LDW) available. I just rented a car on business in Montana and the comprehensive CDW waived ALL insurance requirements–meaning that if I was in an accident while renting the car, or that if something else happened to it, I would not have been responsible at all. (Assuming I hadn’t previously conducted any of the prohibited activities contained in the agreement.) The cost can be $18 to $22 per day, but it’s well worth it.

      You might also want to buy additional liability insurance. I didn’t need to do that because my limits should be adequate, but people who haven’t also purchased an umbrella liability policy should conside the extra liability insurance.

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