What Is Rental Car Reimbursement?
Rental car reimbursement is an optional form of coverage within an auto insurance insurance policy that helps pay for the cost of a rental vehicle while the policyholder's own car is being repaired after a covered loss. This specific type of protection falls under the broader category of Property and Casualty Insurance, which covers direct physical damage to property and legal liabilities. It is typically added to a standard policy for an additional premium and usually requires the policyholder to have both collision and comprehensive coverage in place. Unlike some other coverages, rental car reimbursement generally does not have a separate deductible.
History and Origin
The concept of reimbursing for alternative transportation stems from the broader evolution of auto insurance itself. Automobile insurance began emerging in the late 19th century as vehicles became more common, with the first liability policies issued around 1897 to provide financial protection against property damage or injury caused by a driver. Early policies primarily focused on liability, covering damages to others. As the automobile industry grew and vehicles became integral to daily life, the need for coverage against damage to one's own vehicle became apparent. Insurers began offering comprehensive and collision coverages to address these risks.
The move towards more inclusive policies, including benefits like rental car reimbursement, gained traction as part of expanding consumer protections and acknowledging the inconvenience caused by vehicle repairs. Massachusetts led the way in 1925, becoming the first U.S. state to enact compulsory automobile insurance legislation, signaling a broader regulatory trend towards ensuring drivers were financially responsible.4 Over time, as vehicle ownership became widespread and cars became more complex and costly to repair, the practicality of providing temporary transportation became a valuable addition, solidifying rental car reimbursement as a common optional coverage to minimize disruption for policyholders during vehicle downtime.
Key Takeaways
- Rental car reimbursement coverage helps cover the cost of a rental vehicle when a policyholder's car is out of commission due to a covered insurance event, such as an accident or theft.
- This coverage is typically optional and must be added to an existing auto insurance policy, often requiring prior enrollment in collision and comprehensive coverage.
- Policies usually include daily limits on the rental cost and a maximum number of days for which reimbursement is provided.
- It does not cover rental costs for routine maintenance, recalls, or vacation travel.
- While the policyholder often pays the rental costs upfront and seeks reimbursement, some insurers may arrange direct billing with preferred rental car companies.
Interpreting the Rental Car Reimbursement
Interpreting rental car reimbursement coverage involves understanding its specific limits and conditions, which are outlined in the claim contract. This coverage is designed to mitigate the inconvenience of not having a personal vehicle after an insurable event. Policyholders must review their insurance policy to ascertain the "per day" limit, which specifies the maximum amount the insurer will pay for a rental vehicle each day. For instance, a policy might offer $30, $40, or $50 per day.
Equally important is the "maximum days" limit, which indicates the total number of days the rental expenses will be covered. This could range from 15 days to 30 days, or sometimes longer, depending on the policy and the time required for vehicle repairs or replacement. Effective risk management for a policyholder includes knowing these limits to avoid unexpected out-of-pocket expenses if a chosen rental exceeds the daily rate or if repairs take longer than the covered period.
Hypothetical Example
Consider Sarah, who has an auto insurance policy that includes rental car reimbursement coverage with a limit of $40 per day for a maximum of 30 days. One morning, Sarah is involved in a fender-bender, causing significant damage to the front end of her car. The incident is covered under her collision coverage.
After filing a claim with her insurer, her car is taken to an approved repair shop. The shop estimates repairs will take 10 days. During this time, Sarah needs a vehicle to commute to work. She rents a compact car for $35 per day.
Upon retrieving her repaired vehicle, Sarah submits her rental car receipts to her insurance company. Since her rental cost ($35/day) is within her policy's daily limit ($40/day) and the duration (10 days) is within the maximum limit (30 days), her rental car reimbursement coverage fully covers the $350 total cost of the rental car. If, however, she had opted for a larger SUV costing $50 per day, she would have been responsible for the $10 difference ($10 x 10 days = $100) out of pocket, as her policy would only reimburse up to $40 per day. If her car had been stolen, covered by her comprehensive coverage, the rental car reimbursement would similarly apply during the period of replacement or recovery.
Practical Applications
Rental car reimbursement coverage serves as a practical solution for maintaining mobility when a personal vehicle is temporarily unusable due to a covered event. Its primary application is when a car is undergoing repairs following an accident, natural disaster, or other covered property damage. It also applies if a vehicle is stolen and the policyholder needs transportation while waiting for its recovery or for a new vehicle to be acquired.
The value of this coverage is particularly evident in situations where vehicle repairs face delays, such as those caused by supply chain issues for parts or a shortage of qualified mechanics.3 While insurance underwriters set policy terms based on typical repair times, real-world scenarios can vary, making the extended coverage period offered by some rental car reimbursement policies invaluable. These coverages also reflect broader industry practices for travel expenses; for instance, the National Association of Insurance Commissioners (NAIC) outlines guidelines for reimbursement of travel costs, including rental automobiles, typically when they are the most cost-effective or only reasonably available option for authorized business travel.2
Limitations and Criticisms
While beneficial, rental car reimbursement coverage comes with distinct limitations and is not without its criticisms. The most significant limitation is the presence of daily and total duration limits, which may not always align with the actual cost or time needed for a rental, especially if the policyholder desires a similar class of vehicle to their own or if repairs are protracted. For example, if a policy only covers $30 per day and a suitable rental costs $45, the policyholder is responsible for the difference.
Furthermore, this coverage typically only applies to incidents covered by the policyholder's collision or comprehensive coverage. It does not cover situations such as routine maintenance, mechanical breakdowns not related to a covered incident, or using a rental car for leisure or vacation purposes. If a vehicle is deemed a total loss, the reimbursement period may also be capped at the point the vehicle is declared irreparable, not necessarily until a replacement is purchased.
Consumers should carefully read their contract to understand these exclusions and limitations. The process of filing an auto insurance claim, including for rental car reimbursement, involves specific steps and documentation, and adherence to these procedures is necessary for successful reimbursement.1
Rental Car Reimbursement vs. Car Rental Insurance
It's crucial to distinguish between rental car reimbursement coverage and "car rental insurance," as these terms refer to different types of protection from different providers.
Rental Car Reimbursement is an add-on to your personal auto insurance policy. It pays for a rental vehicle when your insured car is unusable due to a covered loss (e.g., accident, theft, covered damage). The purpose is to provide you with temporary transportation while your primary vehicle is being repaired or replaced. This coverage typically has daily and total limits, and you usually pay your regular insurance premium for it.
Car Rental Insurance, on the other hand, is coverage offered by the rental car company itself at the time you rent a vehicle. This can include various types, such as a collision damage waiver (CDW), loss damage waiver (LDW), supplemental liability insurance, or personal accident insurance. It is designed to cover potential damage to the rental car itself, or liability arising from an accident in the rental car, regardless of whether your personal vehicle is in the shop. It is purchased separately for each rental period and is often unnecessary if your personal auto policy or credit card provides sufficient coverage for rental vehicles.
The key point of confusion lies in the word "rental." Rental car reimbursement addresses the need for a rental car due to a problem with your own vehicle, while car rental insurance addresses the risks associated with renting a vehicle, regardless of why you need it.
FAQs
Is rental car reimbursement coverage mandatory?
No, rental car reimbursement is typically an optional add-on to a standard auto insurance policy. It's not usually required by law, unlike liability insurance in most states.
What does "per diem" mean in rental car reimbursement?
"Per per diem" refers to the daily limit your insurance company will pay for a rental car. For example, a $40 per diem means the policy will cover up to $40 for each day you use a rental car for a covered claim.
Does rental car reimbursement cover rentals for routine maintenance or recalls?
No, rental car reimbursement coverage is specifically for transportation needed when your vehicle is out of service due to a covered loss, such as an accident, theft, or other damage covered by your collision or comprehensive policy. It does not apply to routine maintenance, inspections, or recall repairs.
What if the rental car costs more than my daily limit?
If the rental vehicle you choose costs more than your policy's daily reimbursement limit, you will be responsible for paying the difference out of pocket. For example, if your limit is $30 per day and your rental costs $50 per day, you pay the extra $20 each day.
Can I use rental car reimbursement if another driver is at fault?
Yes, you can typically use your rental car reimbursement coverage even if another driver is at fault. Your insurer will then often seek to recover those costs from the at-fault driver's insurance company through a process called subrogation. This allows you to get a rental car quickly without waiting for fault to be determined.