Business Rental Car - Should I purchase the Loss Damage Waiver?

When you or one of your employees rent a vehicle for business use while out of town, there comes that time when you’re standing at the rental car counter and the agent asks the inevitable question: “Do you want to buy our loss damage waiver (or our insurance coverage)?” Most loss damage waiver (LDW) fees are outrageous. Are they worth the additional cost? The answer may depend on your tolerance for risk and inconvenience.

Reasons to purchase the Loss Damage Waiver:

1. Your Business Auto Policy (BAP) may not cover damage to the rental vehicle at all. Your policy does not cover damage to the rented vehicle and related costs UNLESS the policy has been changed to cover vehicles rented by you or your employees on company business (the “Employee Hired Autos” endorsement), and you have purchased special coverage (“hired auto physical damage”).

2. Your insurance company may not pay the entire amount demanded by the rental company. When your policy covers damage to a rented vehicle, the amount payable by the insurance company is the lesser of the “actual cash value” of the vehicle or the amount “necessary” to repair or replace the vehicle, minus the same deductible that would apply if the damage was to one of your own vehicles. In addition, some policies cover “loss of use” with a daily limit (usually as low as $20 per day) and a maximum limit (usually $600). Because of all these limitations, you or your employee may become personally responsible for:

• The amount demanded by the rental company to repair or replace the vehicle in excess of actual cash value” or the amount “necessary” to repair or replace; • The amount of your deductible;
• The amount demanded by the rental company for “loss of use” in excess of the daily and maximum limits payable by your insurance company, if the company offers this coverage at all;
• The amount demanded by the rental company for “diminished value” of the vehicle, even after
the repairs are complete;
• The amount demanded by the rental company for administrative or other loss-related xpenses.

3. Your policy may exclude some electronic equipment. Your policy may exclude loss to some electronic equipment that receives or transmits audio, visual or data signals. If you rent a vehicle equipped with a GPS receiver, for example, your policy may not cover it.

4. Your premium may go up or your policy may not be renewed. You or your employees are driving an unfamiliar vehicle in unfamiliar territory. If you or your employee has an accident while driving a rented vehicle, and your insurance company pays the claim, it may hold this fact against you – with a premium surcharge or perhaps even non-renewal.

5. You or your employee’s line of credit may be adversely affected. If you don’t buy the LDW, the rental company will probably ring up an estimated damage amount on your credit card or your employee’s credit card, pending settlement by the insurance company.

6. You or your employee may suffer a huge inconvenience. When you purchase the LDW, you or the employee can bring a damaged vehicle back to the rental company, throw the keys on the counter, and walk away. When you haven’t purchased the LDW, you or your employee may have to spend a significant amount of time dealing with the rental company and your insurance company, and perhaps the employee’s insurance company, as well.

7. Your Personal Auto Policy (PAP), if you have one, or your employee’s PAP may be affected. Most PAPs cover accidents involving vehicles rented by you or your employee, even when the rental is solely for business purposes. When you purchase the LDW, the PAP won’t be needed to pay for damage to the rented auto. (Note: If the accident is your fault or your employee’s fault, the PAP may become involved if theaccident involves injury to other persons or damage to other property. There is nothing you can do to avoid this.) For more information on how the PAP responds to accidents involving rented vehicles, ask us for a copy of an article on that subject.

Bottom Line: We recommend that you buy the Loss Damage Waiver from the rental company.

Here are some guidelines for you to consider if employees rent vehicles for company business:

1. Instruct employees to include the company name, if possible, on the rental agreement.

2. If you have no tolerance for the risk of incurring the potential uninsured losses shown above, or the means to pay those losses, tell employees to purchase the LDW offered by the rental company.

3. Tell employees to report any accident in a rented vehicle to you and to their own personal auto policy insurer or agent.