Q: What coverage is available on a personal auto policy for using a rental car while on vacation? What gaps in coverage would be possible? I know that liability and physical damage coverages would cover a rental car but would there be a coverage gap in loss rentals? And, if there was a total loss, would only the Kelly Blue Book value be paid?

Response 1: You are correct that liability coverage follows while on vacation. However, physical damage is typically not a covered item. The insured should strongly consider purchasing the physical damage coverage from the rental car company. Depending on the terminology, it covers any physical loss to the vehicle regardless of negligence on the part of a listed driver. Lastly, advise your client to complete a visual inspection of the vehicle before and after returning to the rental agency.

If the rental is in a foreign country, even in Canada, the insured's PAP does not extend coverage unless endorsed by the carrier.

Some credit cards have coverage as part of their benefits but carefully read the terms and conditions, as they differ in many ways.

Response 2: PAP coverage for rented autos has often been the topic of articles and received a lot of attention over the years. The ISO PAP will provide liability, subject to the applicable provisions in the policy. 

Rental agreements are not the same, so what a renter is obligated to pay if the car is damaged—regardless of how it happened or if it is the renter's fault—can also vary. The collision coverage and other than collision coverage does provide some coverage for the renter but there can still be problems regarding the cost to repair and the valuation if the car is a total loss. Also, the PAP does not protect the renter from other charges the renter might be responsible for paying if the auto is damaged. This would include things such as diminished value and administrative expenses.

There are several reasons why a credit card is required to rent a car. One of them is so the rental car company can charge the renter for any and all expenses it feels are applicable if the car is damaged.

A renter should purchase physical damage coverage for the auto from the rental car company, which is often called a collision damage waiver (CDW) or loss damage waiver (LDW). Like rental agreements, all CDW and LDW options are not created equal. The renter should review this option to see what coverage it provides. While this option is expensive, and sometimes costs more than the actual rental, typically it will eliminate the gaps and subsequent headaches that will undoubtedly come if the car is damaged. Keep in mind that a deductible will apply if relying on the PAP and a claim might affect your client's future premium.

Response 3: It's always a bad idea to trust another party with your coverage. In the case of coverages provided by rental car companies, many of them are voided if the renter violates the rental contract. What constitutes a "violation" can be something as simple as driving on an unpaved road or speeding. Unless you're prepared to analyze the rental car coverage and go on record with your opinion, the best advice to your client is to have your own coverage.

Second, make sure that the policy covers the full range of exposures: direct liability, contractual liability, damage to the rented vehicle, and its loss of use. And since the rental agreement probably includes a hold harmless agreement requiring your client to defend the rental car company, make sure you've recommended a personal umbrella with high enough limits to cover a very large lawsuit.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

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