You’re involved in an accident, your car is wrecked, and your insurer has stepped in to cover the damages. All is well, and you only have the deductible to worry about, but what happens before the car is fixed? How do you continue to get to work every day and take the kids to school when your car is in theÂ repair shopÂ for the next few days or weeks?
That’s whereÂ rental carÂ reimbursementÂ coverageÂ steps in. If you have thisÂ optional coverageÂ on yourÂ carÂ insuranceÂ policy, you won’t need to worry.
Keep reading to learn how this coverage option works.
Rental CarÂ ReimbursementÂ vsÂ RentalÂ CarÂ Insurance
Before we go any further, it’s worth clarifying the potential confusion surroundingÂ rental carÂ coverageÂ andÂ rental carÂ reimbursementÂ coverage. The former includes damage waivers, property insurance, and liability coverage and protects you when you are driving aÂ rental car.
You will be offered this type of insurance when you rent a car and can also get it through your currentÂ insurance policyÂ or through yourÂ credit card, bank account or travel insurance.
As forÂ rental carÂ reimbursement, it is designed to cover the costs of renting a vehicle when your car is in the shop or has been stolen.
Rental carÂ reimbursementÂ only applies if yourÂ insurance companyÂ is paying for the repairs and those repairs are covered by yourÂ insurance policy. It is a coverage option that is typically only available to policyholders who haveÂ collision coverageÂ or comprehensive coverage insurance.
What DoesÂ Rental CarÂ ReimbursementÂ Cover?
Rental carÂ reimbursementÂ is designed to cover theÂ cost of aÂ rental car, but there are limits. MostÂ insurance companiesÂ will only cover you for 30 days and many also set aÂ daily limit, often between $50 and $100. This means that you can’t claim for costs above this or for a rental period that extends beyond it.
In some states and in some situations, you may not even need toÂ addÂ rental reimbursement coverageÂ to your policy as theÂ at-fault driverÂ could be responsible for yourÂ rental costs. In the event of aÂ car accidentÂ caused by a fully-insured driver, their liability insurance may cover you for transportation costs, while also paying for the damage done to you and your vehicle.
However, there is aÂ coverage limitÂ that means they may not be liable for all the costs you pay to theÂ rental carÂ company. In such cases, havingÂ rental carÂ reimbursementÂ coverageÂ on your policy will cover the difference and ensure you’re not out of pocket.
How Much Does it Cost?
The cost ofÂ rental reimbursement insuranceÂ differs from state to state and provider to provider. Your costs will also be higher if you are deemed to be a high-risk driver and have a history of at-fault accidents andÂ insurance claims. Generally, however, you can expect to pay anywhere from $3 or $4 a month extra to $15 or $20 a month extra.
It’s not a huge amount because the cover provided is very limited. For instance, at $50 a day over 30 days, the insurer’s liability is just $1,500, which is a fraction of the amount they can expect to lose with other coverage options.
How Does the Process Work?
You’re involved in a minor accident and your car is taken to theÂ body shop, now what? If you haveÂ rental coverage, you can do one of the following:
1. Pay for it Yourself
When you pay for the vehicle yourself, you have more choice about what car you rent and from where you rent it, and you can also get it as soon as you need it. If you choose this option, just make sure you keep a record of all the costs so you can report these to the insurer and get your money back.
By choosing this method, you have more control and providing you have cover, you shouldn’t encounter any issues when seeking reimbursement. Get theÂ rental vehicleÂ you want, drive it off the lot, and wait for your car to be fixed and your expenses to be covered.
2. Let YourÂ Insurance CompanyÂ Do It
The second option, and the best option, is to go through yourÂ insurance company. They will contact theÂ rental companyÂ on your behalf and deal with all of the red tape, ensuring you only get a car that you are fully covered for and providing you with all the necessary details at the same time.
By going through your insurer, you can avoid the hassle and they may even help you to get a better deal.Â
It’s worth noting, however, that your insurer will not pay for additionalÂ rental carÂ coverageÂ like damage waivers. But as noted already, yourÂ auto policyÂ may already provide you with the cover that you need.
Should You Get AdditionalÂ CarÂ RentalÂ Reimbursement Coverage?
On average, you will useÂ rental carÂ coverageÂ just once in a 10-year period, and you may only need it for a few days at a time. To determine whether thisÂ additional coverageÂ option is right for you, simply calculate how much it will cost you on a monthly basis and then compare this to how much it is likely to offer you.
For instance, let’s assume that you are charged $10 a month for this additional option. This means you will pay $120 a year or $1,200 over ten years. Assuming you’re being offered a maximum of $50 per day for 30 days, this means the benefits are capped at $1,500.
If you’re paying $15 a month instead, that’s $180 a year, $1,800 a decade, and more than you will get back. And, in both cases, we’re assuming that you rent a car for the full 30 days at the maximum allowed price, which is somewhat rare. As a result, you can probably overlook thisÂ additional coverageÂ option when those are the prices quoted.
Bottom Line: ChoosingÂ Insurance Coverage
FromÂ carÂ rentalÂ coverageÂ andÂ rental carÂ reimbursementÂ toÂ roadside assistance, new car replacement and more, there is no shortage of options for the average driver.Â
But as tempting as it is to add all of these options to yourÂ autoÂ insuranceÂ policyÂ in the knowledge that you’ll be fully covered, the costs can spiral out of control very quickly. You could find yourself spending an excessive amount of money unnecessarily, and at a time when everyone is watching their budgets, that’s never a good thing.
Think aboutÂ rental carÂ reimbursementÂ carefully and reject it if you don’t need it, even if it is only $10 or $20 extra a month.Â
A Guide to Rental Reimbursement Coverage is a post from Pocket Your Dollars.
The sad thing about cars is that like boats and diamond rings, theyâre depreciating assets. As soon as you drive yours off the lot, it immediately begins losing value. Some people are lucky enough to live somewhere with a reliable public transportation system. And others can bike to work. If you donât fall into either of those categories, however, a car isnât something you can put off buying.
Check out our investment calculator.
If youâre preparing to purchase a new or used vehicle, you might be wondering, how much should I spend on a car? Weâll answer that question and reveal ways to make sure youâre not overpaying when you buy your vehicle.
The True Cost of Buying a Car
Next to buying a house, buying a car is likely one of the biggest purchases youâll make in your lifetime. And if you want a quality vehicle that isnât going to break down, youâre probably going to have to pay a pretty penny for a new ride. The average cost of a brand new car was about $33,543 in 2015, compared to $18,800 for a used one.
When you buy a car, of course, youâre paying for more than just the vehicle itself. Besides the fee youâll pay for completing a car sales contract (known as a documentation fee), you might have to pay sales tax. Then there are license and registration fees, which vary by state. In Georgia, for example, youâll pay a $20 registration fee every year versus the $101 that drivers pay annually in Illinois.
The amount you pay up front for a car can rise by 10% or more when you add taxes and fees into the equation. And if you need a car loan, you might have to put 10% down to get a used car and 20% down to get a new vehicle. If you decide to roll the sales tax and fees into the loan, youâll cough up even more money over time because interest will accrue.
Once the car is in your possession, youâll have to pay for insurance, car payments, parking fees, gasoline and whatever other costs come up. In a 2015 study, AAA found that a standard sedan cost Americans $8,698 annually, on average. As convenient as having your own car might be, itâll be a huge investment.
Related Article: The True Cost of Cheaper Gas
How Much Should I Pay?
The exact amount that you should spend on a car might change depending on who you ask. Some experts recommend that car-buyers follow the 36% rule associated with the debt-to-income ratio (DTI). Your DTI represents the percentage of your monthly gross income thatâs used to pay off debts. According to the 36% rule, it isnât wise to spend more than 36% of your income on loan payments, including car payments.
Another rule of thumb says that drivers should spend no more than 15% of their monthly take-home pay on car expenses. So under that guideline, if your net pay is $3,500 a month, itâs best to avoid spending more than $525 on car costs.
That 15% cap, however, only applies to consumers who arenât paying off any loans besides a mortgage. Since most Americans have some other form of debt â whether itâs credit card debt or student loans that they need to pay off â that rule isnât so useful. As a result, other financial advisors suggest that car buyers refrain from purchasing vehicles that cost more than half of their annual salaries. That means that if youâre making $50,000 a year, it isnât a good idea to buy a car that costs more than $25,000.
How to Buy a Car Without Busting Your Budget
If youâre trying to figure out how to make your first car purchase happen, know that you can do it even if your finances are currently in disarray. If you look at a website like Kelley Blue Book before visiting a dealership, youâll have a better idea of what different makes and models cost. From there, you can set a goal and work towards reaching it by saving more and keeping your excess spending to a minimum.
Once you find a car you like (and that you can afford), you can save money by challenging or cutting out certain fees. For example, you can lower or bypass dealer fees for shipping and anti-theft systems. If youâre planning on getting an extended warranty, you can shop around and see if thereâs another company offering a better deal on it than your car manufacturer.
Meeting with more than one dealer and comparing offers can also improve your chances of being able to find a vehicle within your price range. So can timing your purchase so that youâre buying a car when a salesperson is more open to negotiating, like near the end of a sales quarter.
Try out our budget calculator.
If you need financing, itâs important to make sure youâre not getting saddled with a car loan thatâll take a decade to pay off. Long-term car loans are becoming more common. In 2015, the average new car loan had a term of 67 months versus the 62 months needed to cover the average used car loan.
The longer your loan term, however, the more interest youâll pay. And the harder itâll be to trade in your car in the future, especially if the amount of the loan surpasses the carâs value. Thatâs why some experts suggest that buyers get loans that they can pay off in four years or less.
How much should you spend on a car? Only you can decide that after reviewing your budget and figuring out if you can pay for the various expenses that go along with owning a car.
Keep in mind that getting a new or used car will likely involve taking on more debt. If you canât make at least minimum payments on the debt you already have, it might be a good idea to get a part-time job or concentrate on saving so you wonât have to take out a huge loan.
Update: Have more financial questions? SmartAsset can help. So many people reached out to us looking for tax and long-term financial planning help, we started our own matching service to help you find a financial advisor. The SmartAdvisor matching tool can help you find a person to work with to meet your needs. First youâll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.
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