If your car were totaled in an accident, how would you get to work the next day? Loss-of-use car insurance may provide an answer.
Loss-of-use insurance is an optional coverage on many car insurance policies that covers the cost of a rental vehicle for policyholders who have incurred a loss that leaves their car temporarily inoperable.
"Anyone who doesn't have multiple cars available to drive should purchase loss-of-use insurance because it is much less expensive than renting a car," says Carole Walker, executive director of the Rocky Mountain Insurance Information Association.
Walker says the cost of loss-of-use car insurance varies depending on the insurance company and the options chosen. However, the extra coverage generally costs less than $50 per year.
Kip Diggs, a spokesperson for State Farm Insurance, says the insurer's average annual premium for loss-of-use coverage is about $28.
"Anyone who can't afford the cost of renting a vehicle while theirs is unavailable to them or doesn't have a spare car to drive should buy loss-of-use coverage," Diggs says. "Renting a car for days or weeks can be expensive."
There are many different types of loss-of-use coverage, but most policies "allow a certain amount of coverage per day and a maximum [overall] limit on the cost of a rental car," says Walker.
Diggs says State Farm generally has no dollar or time limits and pays for a rental car during the entire time the damaged car is being repaired.
Rental fees will also be reimbursed if the car can't be repaired and you need to rent a car while shopping for a new one. But there usually is a limit on how long rental fees will be covered, Diggs says.
Some consumers may be tempted to upgrade their rental car since the insurance company is paying for it. But because many insurance companies cap the overall amount of money they will pay out, it's better to exercise restraint, Walker says.
"It's just transportation while your car is being repaired, so if your policy is limited to a certain level per day or overall, it makes more sense to get the least expensive rental car to make sure you don't have any additional out-of-pocket expenses," says Walker.
Walker says drivers have the option of choosing their own rental car company, but she suggests asking the insurance company for a recommendation.
"Most insurance companies have relationships with rental agencies and may be able to get lower rates for their customers," says Walker.
If the other driver was at fault in the accident, payment for the rental car is generally paid for by the other driver's insurance company rather than your own loss-of-use car insurance.
"If you are at fault, the coverage will be paid under your loss-of-use endorsement," Walker says. "If someone else is at fault, the rental car coverage comes from their liability insurance. This way, drivers are covered even if the other driver does not have loss-of-use coverage."
Walker says drivers should always contact their own insurance company before attempting to contact the other driver's insurance company.
"You can have the other person's insurance company pay for your rental vehicle, depending on whether the other driver's insurance company is accepting fault for the wreck," says Diggs. "If fault is being disputed, you can use your rental coverage while the final determination is being made."
Loss-of-use car insurance coverage also does not apply if your car is stolen.
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