Here’s a simple question that travellers who regularly rent and drive a car overseas would have considered before.
When asked by the car rental employee if you would like to upgrade your insurance coverage for a “small” fee, in order to enjoy comprehensive car rental insurance coverage, should your answer be “yes” or “no”?
Understanding Rental Car Excess
Before understanding how car rental companies make profits on the insurance policies that they sell, you first need to understand how rental car excess works.
When you are overseas and you rent a car, the car would come with some basic insurance coverage. As a renter, there is typically a car rental excess that you are liable to pay.
For example, if the car rental excess is $3,000, it means you are liable to pay for any damages up to $3,000 on the car.
Equally important to note is that unlike owning and driving a car in Singapore, where we may sometimes reasonably expect not to pay anything if we are not at fault for the damage (e.g. another car hits us and it was caught on camera), most car rental companies could have contracts that would explicitly state that the renter is liable to pay for damages, even if the accident was not their fault.
This provision is included for practical reasons. The car rental company cannot, or may not, wish to enter into a lengthy investigation each time a minor damage is found on one of its vehicle.
Buying Comprehensive Coverage
As a traveller enjoying his/her holiday in a foreign country, the last thing most Singaporeans would want ruining their holiday is to be liable for a $3,000 repair bill.
There are a lot of things that can go wrong when you are driving in a foreign country. For a start, you will not be familiar with the road that you are driving on in many countries, roads conditions are very different from what we are used to in Singapore.
Also, unlike Singapore, many countries, even developed ones, are not as safe compared to Singapore and this extends to your vehicle being at risk as well. Driving a rental car also exposes one to a higher probability of crime. A smash on your windscreen while you are parked and away from your car is all it takes to be liable for a hefty bill.
For an added peace of mind, most car rental companies will offer comprehensive insurance coverage, at a high fee of course. This will cover any liability that you may incur arising due to damages to the car. Additional insurance fees are usually charged on a daily basis (e.g. S$30 per day). If you are renting the car for eight days, you may pay about S$240 more. This could easily increase your overall car rental cost by 30 to 40%.
Buying Travel Insurance
Aside from opting for comprehensive car rental insurance, one other area that Singapore travellers can rely on will be to simply buy a good personal travel insurance policy.
A travel insurance policy would cover you in various areas such as medical emergency, disruption to travel plans, flight delays, loss of items, theft and yes, even car rental excess.
For example, Income provides an excess of up to $2,500 under its preferred plan. If you opt for their classic plan, coverage is up till $1,500.
In other words, if you incur a rental car excess damage of $1,000, the classic plan would cover you for the cost payable. If you want higher level of protection, you can opt for the preferred plan, which covers you up till $2,500.
This could be a better (and cheaper) alternative than to be paying extra for comprehensive car rental insurance. In addition, you also enjoy other personal travel insurance coverage.
But this seemingly logical view leads to two major misconceptions. The first is that you should never opt for comprehensive car rental insurance coverage. The second is that if you do, for any reason, opt for comprehensive car rental coverage, you are off the hook for anything that happens to the car. Both views are not completely accurate.
To help us answer these questions, we spoke to Mr Jimmy Tan, Technical Director at the General Insurance Association (GIA) of Singapore.
DollarsAndSense (DNS): Additional premiums to reduce car excess are notoriously expensive. At the same time, some Singaporeans may be unaware that their own travel insurance plans include optional rental vehicle excess cover.
For drivers who intend to rent a car overseas, is this a good reason to buy higher level of coverage in order to enjoy greater rental vehicle excess coverage, which also comes with additional coverage in other areas, as opposed to paying more to car rental companies to reduce excess?
Jimmy Tan (JT): Many travel insurance policies include cover for rental car excess, either as part of the policy benefit or under an optional cover. However, there is usually a limit for the cover depending on the travel insurance plan and can vary between $500 to more than $1,000.
Rental car excess on the other hand, can amount to more than $3,000. In the event of an accident, the insured may be liable to pay the rental car excess.
Before deciding if there’s a need to purchase a comprehensive rental car excess to reduce the difference, check what is the typical excess applicable for the destination, as well as the limit of the car rental excess under the travel insurance plan. The additional premiums applicable are usually dependent on the amount of excess.
DNS: Does having a car rental excess mean a driver is totally free from all liabilities? What are certain scenarios where drivers may still be liable for damages, in spite of already having reduced their rental car excess to zero?
JT: Rental car excess only provides cover for excess when the insured is liable to pay the rental car agency for damage to the rental car, and the insured observes the terms of the rental car excess insurance and car rental agreement. If the policies don’t cover the claim, for instance in situations like drink-driving or for an undeclared driver, then the insured will have to pay for these. Or if the insured has breached the policy conditions under the rental car excess, the excess will not be covered.
Jimmy also shared with us some additional tips that Singapore drivers should look out and take note of when renting a vehicle overseas.
# 1 Rent only from licensed rental agencies/companies
# 2 Check what your travel insurance covers – Most travel insurance policies offer optional cover for Rental Car Excess.
# 3 Only named drivers or co-drivers should drive the car – Rental Car Excess coverage is only applicable to drivers who are registered at the time of rental. Damage caused while the vehicle is driven by other parties will not be reimbursed.
# 4 Confirm the terms of the rental – Most policies are applicable only to motorcars but exclude coverage for motorcycles. Study the contract carefully before leaving the rental office, ensuring that you have checked the optional extras.
# 5 Submitting and getting your claims approved – You may need to provide copies of supporting documents in order for your car rental excess claim to be approved, such as your rental vehicle agreement, an incident account, an itemised repair bill and written notice from the rental company about the excess you must pay.
# 6 Credit card limit – Always ensure that your credit card limit covers the excess you are liable to the rental company as it might be charged for upfront payment. In the event of an incident, you will need to lodge a claim with your travel insurer to be reimbursed.
# 7 Rental vehicle return – Some policies cover the return of the rental hire to the nearest hire depot if you are hospitalised and unable to return the vehicle in person.
# 8 Variations in Car Rental Excess – Take note that replacement and repair costs can vary from make and model. For example, the excess for luxury or 4 Wheel-Drive vehicles are higher than regular sedans.
# 9 Motor Insurance policy – Travellers must purchase comprehensive motor insurance for the rental vehicle during the car rental period and have adhered to all terms and conditions stipulated in the comprehensive motor insurance policy.
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