Rental Reimbursement Coverage: Do You Need It For Your Car?
The bad news is you’ve been in an accident. The good news is that insurance will cover the cost of repairs. But what will you do for transportation while your car is in the shop? If you have rental reimbursement coverage, insurance will pay for the use of a rental car, too.
But this is optional coverage, which means you’ll pay more in premiums to get the added protection. Is it a good value? Not for most people. Read on to learn how it works and how to decide if it’s right for you.
Rental car reimbursement insurance provides you with a rental car in the event your car needs repairs for a claim covered by your insurance policy. Depending on your insurer, it may also cover other transportation costs like cab fare and public transit expenses. Rental reimbursement insurance generally has no deductible.
Keep in mind that this coverage will only pay for a rental when your own insurer is paying for the repairs, generally under your collision or comprehensive insurance. In most cases you can only purchase rental reimbursement insurance if you also have collision and comprehensive coverage on your policy.
It’s also important to note that your insurance company won’t pay for the rental indefinitely. Your policy will have a limit on how much it will pay per day and how much total it will pay per claim. The limit per claim might be a maximum dollar amount or a maximum number of days of coverage. Expect rental reimbursement coverage to add $2 to $15 per month to the cost of your insurance, depending in part on the level of coverage on your policy.
Don’t confuse rental reimbursement insurance with the coverage you get when you rent a car for business or vacation travel. You can learn more about that coverage in our rental car insurance guide.
What happens if your own insurance company is not the one paying to repair your car?
In many states, if another driver’s liability policy is covering repairs to your car, that driver’s insurance is obligated to provide you with transportation while your car is being repaired. But even in cases where this is mandatory, they may not be required to pay 100% of the cost of the rental. And since it may take several days or weeks to determine fault, you may need to pay out of pocket and get reimbursed later.
With rental reimbursement coverage, you have two choices when you’re ready to rent a car after a covered accident:
- Option 1: You can rent the car yourself, pay for it out of pocket and submit the bill to your insurance company for reimbursement. Some people prefer this option because it enables them to get the exact rental car they want, to take advantage of discount programs or to rack up travel rewards.
- Option 2: Usually the better option, you can let your insurance company arrange the car rental for you. If you do, your insurance company will handle the paperwork and will pay the car rental company directly. Each insurer has a relationship with one of the major car rental companies and generally can get a better rate for you than you can get for yourself, which might translate into a larger car.
Regardless of daily limits, your insurance policy is unlikely to pay for any extra fees such as a collision damage waiver. But purchasing insurance from the car rental company should not be necessary. In most cases, your own auto policy will cover the rental car while you drive it. The person handling your insurance claim can help you understand what’s covered and what isn’t while you’re renting. Plus, you may have other options for rental car insurance that also won’t cost you anything extra.
While rental reimbursement insurance doesn’t add much to your premiums, you’re not likely to get much in return.
Here’s a quick rule of thumb: If you want to check the value of a potential policy, just multiply its monthly cost by 120 to see how much you’d pay over a ten year period. If that totals more than your coverage limit (the maximum you’re insurance company will pay for your car rental), you’re probably not going to get the extra cost back in benefits.
Here’s how we came up with that test: Allstate estimates that its average customer files a claim only once every ten years, which means a typical driver will make 120 monthly payments between accidents. The chart below shows what coverage limit you’d need to get to break even on a variety of premiums for this coverage.
How Much Coverage The Average Driver Must Get To Break Even On Premiums
As you can see, unless your premiums are very low, you’re likely to pay much more in premiums than you’ll ever get back in benefits.
Furthermore, these numbers reflect a scenario where your car requires time-consuming repairs, leaving you in need of alternative transportation for several weeks and maxing out your rental reimbursement benefits. If your car doesn’t require complicated repairs, your costs to rent a vehicle may not approach your policy limit. For example, a seven- to ten-day rental of an economy car may cost less than $300. This makes it even harder to break even on your coverage.
For most drivers, a better bet would be to put an equivalent amount into a savings account to help build an emergency fund.
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