Rental Car Reimbursement vs. Rental Car Coverage

Car insurance can be confusing even for those of us who have had policies for decades. This is undoubtedly true for insurance related to rental cars, when it’s easy to mix up two common coverages you might need: rental car reimbursement and rental car insurance. Know which is which, and which you have, so you know whether you’re covered (or not).

What Is a Rental Car Reimbursement Policy?

Rental car reimbursement is an optional add-on, or endorsement, for your personal auto insurance policy. It reimburses you for transportation expenses, like car rental or public transportation costs, while your car is in the shop for a covered claim. Rental car reimbursement is often offered by auto insurers for a nominal fee. One year of coverage might cost less than what you could pay out of pocket to rent a car for one day. You might also see rental car reimbursement called “transportation expense coverage” on your policy.

What makes rental car reimbursement confusing is that it’s also sometimes referred to as “rental car coverage.” However, this is actually an entirely different kind of coverage.

What Does Rental Car Reimbursement Cover?

Rental car reimbursement will only pay transportation expenses related to covered claims, so you’ll have to refer to your car insurance policy for the coverages it includes. For example, say you don’t have collision coverage and your car needs a repair because of a fender bender. Your insurer probably won’t cover transportation expenses because your policy doesn’t cover collision damage.

While some insurers partner with specific car rental agencies, many allow you to choose your own. You typically don’t have to pay a deductible to use rental reimbursement coverage. You also most likely won’t pay anything upfront if the car rental company is within the insurance company’s network of providers.

Rental reimbursement coverage has daily and per-occurrence limits. You might see these limits listed as 25/750 on your policy, meaning your auto insurer pays up to $25 a day on your car rental, up to a total of $750 per claim. Consider selecting a daily limit that covers the going rental car rate in your area for the type of vehicle you’d like to have while your car is being repaired.

What Is Rental Car Coverage?

In contrast, rental car coverage pays for damages and liability you may incur when renting a car. You may have this coverage under your personal car insurance policy’s collision and comprehensive elements or as an endorsement, which is why it can be confused with rental reimbursement coverage. You may also have rental car coverage through a travel credit card. 

Rental car insurance is also offered by rental car companies at additional cost when you rent one of their vehicles. It shields you from liabilities and property damage expenses related to a covered occurrence, such as an accident, for the duration of your rental. 

How Rental Car Coverage Works

How coverage works depends on its source. 

Through a Rental Agency

Rental car agencies generally offer four coverages:

• Liability: Expense coverage for the other party when you’re at fault (average of $7 to $14 per day). 
• Loss-damage waiver: Vehicle damage expenses coverage; also called collision damage waiver (average of $10 to $20 per day).
• Personal accident insurance: Medical bill coverage for you and your passengers (average of $1 to $5 per day). 
• Personal effects coverage: Personal belongings replacement coverage (average of $2 to $5 per day).

Rental agencies may offer coverage a la carte or as a package, but paying for a package could mean you’re paying again for coverage you already have. 

Coverage You Already Have

You may already have some or all of these coverages for your rental car through a few sources: 

• Auto insurance: Your personal auto insurance coverage generally extends to vehicle rentals up to your policy limits, though some insurers may require you to purchase an endorsement. For example, if you have collision and comprehensive coverage on your personal policy, it likely covers your rental car, too. Your liability coverage, which is legally required in nearly all states, should also extend to your rental car.
• Homeowners or renters insurance: Policies typically cover your personal belongings when they’re damaged or stolen from your car, again up to your policy limits. 
• Credit card: The credit card you use as payment for the rental car may also include limited vehicle rental coverage that kicks in after your primary insurance is depleted. Travel credit cards tend to provide more generous rental car coverage as an automatic perk or possibly for purchase.

Beware that even if you have rental car coverage through a personal car insurance policy or credit card, rental agencies may charge you a “loss of use” fee for lost rental income while the rental car is being repaired. Your personal auto insurance usually doesn’t cover that fee, and your credit card may only provide limited loss-of-use coverage, if it covers anything. Rental car insurance from the rental agency likely includes this coverage under the loss-damage waiver. It’s essential to review your policy or card benefits agreement to understand its coverages before you rent a car.

Make Sure You’re Covered

Before declining your insurer’s rental reimbursement coverage, assess whether paying out of pocket for a rental car while yours is at the repair shop for the average two-week stay would present a financial hardship. Then, weigh the cost of rental reimbursement coverage against daily rental car rates to help you choose the best option for you. 

The best way to be confident that you have the rental car coverage you want is to understand your auto and home insurance policies and your card benefits (if you’re paying with a credit card). Consider your coverage limits and additional fees that may be excluded from coverage, such as loss-of-use or towing charges. It’s helpful to know this information before you show up at the rental car counter so you don’t walk out underprotected or wind up paying extra for unnecessary coverage.