Rental Car Insurance Considerations.
Issue #2
April 9, 2007
When it comes to renting vehicles for business use, it’s important to understand your coverage options to smooth out any surprise bumps in the road. Since coverage varies from one rental agency to the next, it’s important to know the risks and how to protect against them.
For years, we have been advising our clients to purchase Hired Car Physical Damage on their business auto policy and to reject the “insurance” offered when you rent a car. Since Hired Car Physical Damage covers rented vehicles the same as it would an owned vehicle, why pay more for Loss Damage Waiver (LDW) or a Collision Damage Waiver (CDW)? The answer is because rental agreements have evolved in recent years and might possibly create pitfalls for auto renters.
About Rental Insurance
Should you use coverage from the rental car company and remove the Hired Car Physical Damage from your business auto policy? This would be a good solution if you could rely on the rental car coverage. Unfortunately, there are provisions in every rental contract that can void the coverage. For example, coverage is often voided if the driver has a single drink before driving; if he asks someone to drive in his place and that person is not listed as an authorized driver; if the driver is under the age specified in the rental contract; or if the car is taken on unpaved roads. Unfortunately, there are many ways to void the LDW/CDW, and they vary from one agreement to the next.
About Personal Auto Policies
Some personal auto policies won’t cover an SUV, van, or pickup being used for business. Plus, a personal auto policy won’t cover if the employee doesn’t carry Comprehensive and Collision — a likely case if the employee drives an older vehicle. Some policies exclude loss of use and all exclude diminution of value. And, if the personal auto policy does pay the claim, it will be on the driver’s loss record and might result in cancellation of coverage.
About Credit Card Coverage
Will the credit card used to rent the vehicle pay for the loss if your insurance doesn’t? To activate coverage, the cardholder must be the primary renter and must decline the LDW/CDW. Nothing is standard with credit card coverage, and it may be changed from time to time at the credit card company’s discretion. Also, if you violate any terms of the rental agreement, the credit card coverage is voided when you need it most. Many credit cards exclude rented SUVs, and some exclude any weather-related damage, like flood and hail.
Minimizing the Risk
- What should you do to minimize your risk? We recommend:
- Dealing with one corporate-approved rental company, if possible. This will establish that the rentals are for business use and that the business is renting the vehicle, not the employee. Review the contracts of at least three rental car companies and choose the one that best suits you. Make sure to sign a blanket agreement for all rentals and keep a copy on file.
- Taking the LDW/CDW coverage, or self-insure any exposures not covered by Hired Car Physical Damage. Such exposures typically include loss of use, diminution of value, storage fees, administration and claims expenses. Some loss of use may be provided by your Business Auto policy. Ask us to review this for you. Depending on how often your firm rents vehicles and the cost of LDW/CDW, self-insuring might be a good option.
- If you purchase LDW/CDW, make your employees understand the “Prohibited Uses” or other section that explains actions that will void coverage, even though you paid for it.
- Continue to carry Hired Car Physical Damage on your business auto policy.
Got Questions?
Ed,
I was talking with a fellow business owner who mentioned that his company recently completed a disaster plan. When I said that we had an emergency action plan too, he responded that it was not the same thing. What is the difference?
Ken,
These two terms are often confused, yet they are quite different. An emergency action plan is referenced by an OSHA standard, and is intended to guide employees on how to react quickly to emergency events in and around your facility. A disaster plan, also referred to as a business contingency plan, is far more extensive in that it defines the recovery process to restore your company’s critical business functions. While there are no OSHA requirements, having a disaster recovery plan is considered good business practice.
Ed
Free for the asking . . .
Are you familiar with the laws of your state about using cell phones while driving? Send me an email at ed@kempkey.com and I will send you a list of the states that have banned cell phone use, plus any comments on their specific laws.