Rental Reimbursement Coverage: Pros and Cons

An estimated 6 million auto-related accidents occur every year, according to the U.S. Bureau of Transportation Statistics.

So, it is no surprise that carrying auto insurance is required by law in all 50 U.S. states.

While almost every state mandates a minimum level of coverage for auto insurance, there are many additional components of auto insurance coverage that policyholders can add to their overall coverage.

One such component is rental car reimbursement coverage.

This often-overlooked auto insurance add-on can end up saving policyholders hundreds of dollars if they find themselves without their vehicles following an automobile accident.

How Rental Reimbursement Coverage Works

Rental reimbursement coverage is typically part of an auto insurance policy’s comprehensive or collision coverage. This auto insurance add-on can cost a policyholder between $20 and $60 every six months, depending on the level of coverage selected.

The level of rental reimbursement coverage is set as a limit per day plus a maximum amount. For example, 30/900 rental reimbursement coverage would provide the policyholder with $30 reimbursement per day, with a maximum of $900 for the total duration of the car repair.

It is important to note that rental reimbursement coverage is good only when the policyholder is in need of a rental car as a result of an accident of some sort. If the car breaks down because of a mechanical failure or normal wear and tear, the insurance policy will not provide coverage for a rental car.

Additionally, rental reimbursement coverage generally will kick in only when the vehicle is not drivable or is in the shop being repaired. If the vehicle is drivable, chances are the policy will not cover a rental car.

Another important point regarding rental reimbursement coverage is in cases of vehicle theft. Many auto insurance policies include a clause that requires a policyholder to report the theft within 48 hours or the rental car expenses will not be reimbursed.

When you file a claim for rental reimbursement, your auto insurance company can handle the funding in two different ways. Some insurance companies will work directly with preferred rental companies so their policyholders can avoid any out-of-pocket expenses. Other companies, however, will require the policyholder to pay for the rental car upfront and then submit the claim for reimbursement.

The Benefit of Rental Reimbursement Coverage

The primary benefit associated with rental reimbursement coverage is the actual coverage of costs to rent a car, which can amount to several hundreds of dollars, in comparison to the relatively low cost to include the rental reimbursement coverage on an auto insurance policy.

The average repair time following an auto-related accident is two weeks, according to the U.S. Bureau of Transportation Statistics. If you figure that the cost to rental a compact vehicle could run about $48 per day, your total rental expenditure would reach over $670. If your family is large, then you might be out even more money by renting a larger vehicle, such as a truck or SUV.

As noted, the cost to include rental reimbursement coverage on an auto policy can range from $20 to $60 dollars every six months, or $40 to $120 per year. Even at the highest rate of $60, it would take about five and half years until the cost of carrying the rental reimbursement coverage would exceed the estimated $670 in costs.

Potential Cons of Rental Reimbursement Coverage

While the cost to include rental reimbursement can be minimal in comparison to potential out-of-pocket costs to rent a car while your car is in the shop, ultimately adding rental reimbursement coverage is a bit of a gamble. You might not need the coverage when all is said and done. However, having any kind of insurance is a bit of a gamble.

Even if you decide carrying rental reimbursement coverage is worth the gamble, some drivers might not need to carry rental reimbursement coverage as part of their auto insurance simply based on the type of car they drive or their sales agreement when they purchased the vehicle.

Some luxury automakers, like BMW or Mercedes, often provide loaner cars to their customers when the car is being repaired. Additionally, many dealerships are adding in the provision of loaner cars into their sales agreements as incentives. So, before adding rental reimbursement to your auto insurance policy, it is important to check with the dealership from which you purchased your vehicle to find out if you will have access to a loaner car if your car is in the shop.