Waiting for the cost of COE to drop below $40,000 before buying a car these days is like waiting for paint to dry. It’s not half as fun though. If you only need the car for a short-term period, or for a specific purpose, consider renting one. Renting a car is much cheaper and should save you from years of debt.
However, before you sign the rental contract, make sure you’re aware of what you’re getting into. Most car rental services forc- I mean, strongly encourage, you to agree to their car insurance terms and conditions.
The main thing you need to be concerned about is how much third-party liability and property damage you’re covered for. Many rental car companies claim to provide unlimited third-party liability. While that’s good, it doesn’t mean that you won’t need to pay anything in the event of an accident. With any insurance, especially car insurance, there’s the concept of excess.
What is excess?
Excess is the first amount of a claim which you, the insured person has to bear. This is to ensure that only major claims are brought to the insurance company. For example, if you, as the insured person has an excess of $500 and the total repair costs are $200, there’s no point making a claim with the insurance company. The insurance company isn’t going to pay a cent. You need to pay the full cost of $200.
However, if the total repair costs is $2,000, then you will pay only $500 and the insurance company will pay the remaining $1,500. The higher the excess, the more careful you would probably be. For some rental car companies, excess liability is between $3,000 and $4,000. That means any repair costs below $3,000 will be paid by you. That’s a lot.
It’s just like how my mother used to tell you that gash in my leg was only a “flesh wound” and wouldn’t even spare me a plaster. Mothers these days would use a whole bottle of antiseptic to bandage a paper cut. Ah, I miss the 80s.
What do terms like “Excess (Section 1 only)” mean?
For car insurance, for both private cars as well as rental cars, the policy is divided into Sections.
Section 1 would cover your own damage claims. That means, if the rental car is damaged, regardless of who is at fault, the insurance company will pay for any repair costs that exceed your excess.
Section 2 covers third-party claims. This refers to any costs incurred by others as a result of an accident. Again, the insurance company will pay for any repair costs that exceed your excess.
Now, remember how I said most rental car companies claim to provide unlimited third party-liability? That doesn’t mean that there’s no liability on you, the hirer. Some rental car companies will include in the car insurance terms like “Excess: Section 1 and Section 2 separately”.
So what does “Excess: Section 1 and Section 2 separately” mean?
This means that you’ll have to pay the excess on both your own damage claims as well as any third-party claims. Say for example, the excess is $3000: Section 1 and Section 2 separately. That means you may have to pay up to $3,000 for damage to your rental car, and another $3000 for the third-party’s claims, before the insurance kicks in. That’s $6000 in total! Suddenly your rental car isn’t looking so cheap anymore.
Another term you might find is “Excess: All claims”. This means that you’ll have to pay the excess even though it’s mainly a third-party claim. For example, the excess is $3,000: All claims. You lightly tap another car with the rental car. Your own rental car damage is only $500. The other car, the third-party, is a Proton that was built in the 80s. The bumper disintegrates on contact and the claim is for $2,500. Instead of only paying $500 for your own car damage, you have to pay the full combined amount of $3,000, and the insurance company doesn’t pay a cent.
The reason for this is, you’re more at risk of getting into an accident when you’re in a rental car. This is especially if the car is a high-performance model or a luxury car. The rental car company will also take your driver profile into consideration – like, you know, if even your mother doesn’t want to sit in the passenger seat when you’re behind the wheel. These high excess amounts are to discourage you from reckless behaviour.
Renting a car isn’t some kind of scam, really…
Most of the time, the rental car companies will be upfront about this particular difference in their rental car insurance policy. They’ve got nothing to hide – the point really is to make sure you drive safely while in their cars. Even though there are many rental car options available in Singapore, you usually don’t have the luxury of choice or time when you’re applying for one. Chances are, you’ll need it the same day you book it and that’s exactly what they’re counting on.
So unless you’ve got $6,000 stashed somewhere in your bank account, and you’re ready to lose it, always read the terms and conditions when renting a car. And always be safe on the road!
Other terms and conditions to look out for…
If you’re planning to drive the rental car into Malaysia, companies will need to you pay a premium, depending on how far up North you’re headed. That’s fine. In fact, you SHOULD inform them that you’re planning to drive the rental car into Malaysia and pay that extra amount. If not, you usually will not be protected by the insurance policy should anything happen in Malaysia.
To make sure you choose the right package that suits both your driving and financial needs, you can always use the simple Car Insurance Wizard on MoneySmart.
Are there other terms and conditions that people who rent cars should look out for? Let us know.