A few months ago, I was (ironically) on my way to an auto parts store when I was cut off by a limousine, of all things. Sadly, my tiny little Miata couldn’t stop in time:
Happily, everyone was OK and the limo wasn’t full of teens who wouldn’t make it to prom. Atlanta PD officially cited the other driver and found him at fault, so after we all parted ways, I mentally geared up for some verbal jousting with their insurance company.
Luckily, the other driver had State Farm, who are pretty courteous and easy to deal with. After a friendly young rep walked me through everything I was entitled to, I had a question:
“What about loss of use compensation?”
There was a pause, as if I had just asked for a rare, vintage wine at a fancy restaurant and they had to remember if there was a bottle hiding in the cellar.
The thing is, I don’t blame the rep for being caught a little off guard by the question. Mostly only lawyers and insurance nerds like me tend to know what LOU comp even is.
But it’s definitely worth knowing about since it can easily net you an extra few hundred bucks after your next fender bender. Case in point, the State Farm rep pecked away at his keyboard for a minute and got back to me with some good news:
“Alrighty, sir – with loss of use comp you’re entitled to an extra $475.”
If you’re the victim of an auto accident and lose the use of your car for a while, you’re almost certainly entitled to an additional payout in the form of loss of use compensation.
Read more: Fender Bender? How To Handle A Minor Car Accident
When it comes to cars, auto-related loss of use compensation is designed to cover the inconvenience/expense of losing access to your car while it’s in the shop for repairs.
In theory, loss of use comp should cover the cost of a rental or public transit as well as loss of income if you need your car to make money (like driving for rideshare companies).
In reality, however, most insurance companies will only pay out loss of use comp at a strict per diem rate. Cases can be made for strictly commercial vehicles like taxis or trucks, but the rules surrounding personal vehicles sometimes used for commercial purposes are murky.
Doesn’t hurt to ask, though!
Read more: Can You Rent A Car With A Debit Card? It Depends
In simplest terms, you typically qualify for auto-related loss of use compensation when:
- You’re entitled to a rental car.
- You decline it, or a rental is unavailable.
The magic words, either coming from your insurance provider or the other driver’s, are “rental car.”
Here’s what a lot of folks don’t know
If you’re offered a rental car by an insurance company, you can actually decline it and accept cash instead. That cash won’t be as much as the rental costs, but it’s still something – and it’s called loss of use compensation.
If you’re not sure if you need a rental car, you can take a rental car some days and a loss of use per diem other days. Your assigned insurance rep will tally it all up later after you get your own car back and you’ll get a loss of use compensation check.
Here’s when you’re entitled to a rental car after an insurance claim
Your entitlement to a rental car will depend on who’s at fault for the accident:
- If the accident was the other driver’s fault. You’ll be entitled to a rental car paid by the other driver’s insurance for as long as your car remains “undrivable” (more on that below).
- If the accident was your fault/no fault. You’ll only be entitled to a rental car if you have rental car reimbursement coverage as part of your policy with your own insurance provider.
The latter case highlights why paying for rental reimbursement coverage might be a good idea even if you don’t intend to use a rental. I used to skip rental reimbursement coverage because I figured I’d be OK without my car for a while. After all, I work from home, and I have a bike I can use to get groceries.
But rental reimbursement coverage can still be helpful since you can often use it for a rental or for a loss of use per diem instead. Check the terms of your own provider’s rental car coverage to be sure.
How long is your car considered “undrivable”?
I mentioned earlier that the at-fault driver’s insurance will pay for your rental as long as your car remains “undrivable.”
According to HG.org, if your car has any of the following:
- Damaged, cracked, or missing mirrors.
- Damaged, missing, or misaligned exterior lights.
- Damaged or missing reflectors.
- Damaged or quiet horn.
- Bent hood.
- Missing bumpers.
- Bodywork with jagged edges.
- Cracked windshield.
- Tires/wheels out of alignment.
- Underperforming brakes.
Your car is legally undrivable, and you’re entitled to a rental car until it’s fixed.
Once you qualify for a rental, how do you get loss of use comp instead?
Once you or the other party’s insurance tells you you’re qualified for a rental, you can simply tell them that you’d rather have loss of use compensation instead. It helps to know their loss of use compensation rate, which is typically a flat per diem.
Then, you can decide on which days you want the rental, and which days you want the cash.
Do you have to know exactly when you need the rental vs. the cash?
In most cases, you won’t actually have to decide right there on the spot. With State Farm, they gave me a special number to call Enterprise and told me to arrange a rental on any days I might need it, no rush. Then, on any days I didn’t have a rental, they’d give me the per diem rate. We’d tabulate it all once I got my car back.
The bottom line is this: once the provider offers you a rental, make abundantly clear that you’d like loss of use compensation for every day that you were entitled to a rental but didn’t get one. Insurance companies won’t fight you on this because their loss of use per diem rate is generally much less than they’d pay for a one-day rental.
How much is loss of use compensation typically worth?
State Farm paid me $25 per day for loss of use compensation.
That may not sound like much, but it adds up quickly – especially if your car was legally undrivable for days, weeks, or months.
If you’re getting loss of use compensation, insurance companies will generally want you to move somewhat quickly – you can’t just let your car sit for a year and collect $9,000 in LOU comp. Providers typically say you’ll qualify for LOU as long as you get your car in a shop within a “reasonable” amount of time, maybe one to two weeks.
Personally, I was so eager to get my tiny little Miata repaired that I got it to the shop within an hour of State Farm officially accepting their driver’s fault for the accident. My shop moved quickly, also – parts arrived the next day, and I was back on the road within three days (thanks, Adnan!).
But even though everything on my end moved at lightning speed, the whole process still took 19 days:
- 10 days for the police report to be released.
- 6 more days for State Farm to collect a statement from the other driver and accept responsibility.
- 3 days for the repairs.
So for a fender bender, 19 days and $475 in loss of use compensation could be considered on the low end. If your next accident makes your car undrivable for a month or longer, you could be entitled to much more.
Here’s a recap of auto-related loss of use compensation and when it applies:
- Loss of use compensation covers the expense/inconvenience of losing the use of your car until it’s repaired.
- Generally speaking, if an insurance company offers you a rental car, you can decline it and take loss of use compensation instead – usually paid at a per diem rate for every day you don’t rent a car.
- You’ll qualify for loss of use comp for every day your car is “undrivable,” which could take as little as a busted taillight or a protruding fender.
- The per diem rate for loss of use compensation could be as little as $25, but given how insurance situations can often take weeks to resolve, those per diems add up quickly.
Next time you, or someone you care about is in an accident, be sure to ask about loss of use compensation once the dust settles. Don’t leave $500+ on the table!