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In order to help our customers make an informed decision about purchasing additional coverage when renting vehicles, we have put together this summary of the situation.

 In conjunction with the customer's agreement in the rental contract to return the rental car in the same condition in which it was received, the rental agreement sets out the extent of the customer's responsibility in the event of loss or damage to the car. The standard terms require the customer to be responsible for the retail value of the vehicle, including loss of use of the vehicle during the period it is unavailable for rental. Most contracts also hold the customer responsible for a reasonable administrative fee and towing and storage. Some rental contracts state that the customer is responsible for the sum of these items even if the damage is caused by an “act of God”, i.e. hail or other weather related damage.

The customer will have the option of purchasing a loss damage waiver (LDW)—or collision damage waiver (CDW) as it was originally called—that relieves him or her of responsibility for damage to the auto unless the LDW is voided because of a violation of the contract. The contract typically provides that if the customer accepts an LDW, available from the rental company for a fee, and does not violate any of the terms of the contract, the rental company will agree not to hold the customer responsible for physical damage to the car. These damage waivers are not insurance but an agreement whereby the rental company agrees not to hold the renter responsible for loss or damage to the car except in the event of voidance of the waiver because of certain specified violations of the rental contract.

A standard personal auto policy will pay some, but not all, of the exposures related to rental cars. All of the automobile policies that we sell (as long as comprehensive and collision coverages are included) will provide coverage for physical damage to a rental vehicle and probably some part of the loss-of-use charges made by the rental car company for the time that their vehicle is out of service while being repaired. However, two revisions in many rental car contracts have significantly increased the renter’s potential for loss under the rental agreement. One is a charge for “diminution in value” whenever a rental car is repaired. An auto that has been damaged in some way may suffer a loss in market value or resale value, even after the damage has been repaired. The extent of the adverse effect on the value of the auto may depend on many things—including extent of damage to the vehicle, its age, its original cost and possible long-term effects of the damage. Furthermore, the extent of diminution may be subjective and the loss may either be actual or simply perceived. The other is “before and after”, a method of determining the renter’s responsibility when a car is substantially damaged. If a rental company elects not to repair a damaged vehicle but simply sell it for salvage, the difference between the market value on the day of the rental (“before”) and the amount the car sold for as salvage (“after”) can be charged to the renter. As rental car companies continue to find ways to charge their customers for damage to rental vehicles, the exposure faced by their customers continues to increase and most insurance companies will not pay for the additional charges. Some credit cards provide some coverage for rental car exposures, but a renter should not expect them to pay diminution or before-and-after charges. Although many loss damage waiver (LDW) or collision damage waiver (CDW) fees are considered outrageous, a renter is best advised to purchase the LDW/CDW for short-term rentals. To learn more about your insurance options when renting a car, please contact your independent insurance agent at ISU - The Machon Agency at 847-993-1300 in IL or 715-546-3642 in WI.
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