Should You Buy Insurance When Renting a Car?

It’s one of those things that confuses many travelers: you’re about to rent a car and the rental agent asks you if you want to purchase insurance, and you’re just not sure.

It’s happened to most of us and we’re not alone. A survey conducted by the National Association of Insurance Commissioners found that 20% of consumers always buy supplemental insurance, another 20% do occasionally and 62% don’t believe their personal auto insurance automatically covers rental cars.

All this confusion is due to lack of knowledge about your auto insurance. Or you may just have the wrong information. For several years I rented cars in Europe believing I had insurance coverage when, in fact, I didn’t. I’m certainly glad I never got into an accident

If you don’t have some kind of insurance when renting a car you expose yourself to considerable financial risk. Being involved in an accident without insurance coverage could cost you many thousands, or even millions, of dollars.

Here’s an overview of what you need to know.

Types of Insurance
Generally speaking, there are three types of insurance you should know about when renting a car:

Collision/Damage Waiver (sometimes called CDW, LDW or DW): this is not really insurance but a waiver in which the rental company agrees not to make a claim against you if your rental is stolen or damaged. It usually excludes various conditions, such as driving while impaired or driving outside a defined area or country. These costs can vary significantly.

Liability Insurance: it protects you if you damage someone else’s property or vehicle and is usually in a specified amount such as $1 million.

Personal Property / Effects Insurance: it covers your personal property if it is stolen from the rental car or damaged in an accident.

CDW prices can be outrageous, and rental agents are often required to push them since they’re such moneymakers for the company. They can cost anywhere from $15 – $30 per day, depending on the car, the company from which you’re renting and the location where you’re renting the vehicle.

Does Your Personal Auto Insurance Protect You?
For most of us the collision insurance we carry on our private vehicles also covers cars we rent, at least in the U.S. and Canada. Thus, you can usually skip this coverage when you rent but you should check with your insurance company in advance.

·       Important to Know: the big caveat, however, is that most times your personal auto insurance does not cover vehicles rented outside the U.S. and Canada. Again, call your insurance company (or check its website) to find out in which countries your policy provides coverage.

Even in the U.S. or Canada, though, your personal auto insurance may not cover what is called “loss of use” charges, the amount the rental agency claims to lose from fees while the vehicle is in the repair shop. This, however, is sometimes covered under collision damage waiver (CDW) or loss damage waiver (LDW).  You should be aware that if you are involved in an accident in a rental and are covered by your own personal insurance, inflated damage fees might cause your insurance premiums to go up in the future.

Insurance Provided by Your Credit Cards
All four major card networks (Visa, MasterCard, Discover and American Express) provide some form of rental car insurance coverage, although MasterCard does not provide coverage to all its cardholders.

This is usually “secondary insurance,” so-called because it only kicks in after your primary insurance (i.e., your personal auto insurance or another policy you’ve purchased) has paid various costs to the rental agency. Many, but not all, credit cards provide “loss of use” coverage when you rent using their card.

Since coverage varies not only by credit card but also by state, you need to check with each of your credit card companies to find out what coverage each provides. Coverage can vary greatly between cards so ascertain which offers the best coverage and then be sure to use only that card when you rent a car.

The 2012 Credit Card Auto Rental Insurance Study by CardHub found that VISA’s rental car insurance received the highest cumulative score (87%), while Discover ranked second (85%), American Express ranked third (82%), and MasterCard last (73%).

·       Important to Know: All four major networks require that you charge the entire rental car purchase on their credit card and decline supplemental insurance/Collision Damage Waivers (CDW) offered by the rental company in order to be eligible. None provide coverage for the rental of exotic, expensive, or antique cars; trucks; vehicles with open beds; or off-road vehicles. VISA and MasterCard do not cover accidents occurring on dirt and gravel roads and American Express will not provide coverage for renting certain popular SUVs.

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Other Insurance Options
One of the better insurance programs is offered by American Express. Its Premium Car Rental Protection program provides primary insurance protection on a rental car up to $75,000 coverage ($100,000 with its Platinum card) for damage or theft. Since it’s primary insurance there’s no need to file a claim with your personal insurance company so your auto insurance premiums will never be affected if you have an accident in a rental car.

The cost is also comparatively low – a flat rate of $24.95 per rental for a period of up to 42 consecutive days. Enroll in the program and you’re automatically insured anytime you use any of your Amex cards for a rental.

·       Important to Know: the American Express Premium Car Rental Protection does not cover vehicles that are rented in Australia, Ireland, Israel, Italy, Jamaica and New Zealand.

Keep in mind also that associations such as the AAA, AARP, etc. sometimes provide rental car insurance. If you’re a member of an association contact them to ascertain your benefits. It’s a call that can save you money when you’re traveling.

Four Other Good Things to Know

A good thing to do is to always inspect any rental vehicle and make the rental agent note even the most minor damage or scratches on your rental form. Also take a picture of it with the rental facility in the background. It’s easy enough to do since today just about every smart phone has a camera built into it.

If you’re renting overseas always get an English version of the contract, which you typically must do in advance, usually online. After all, you don’t know what you’re signing if it’s in a foreign language and you could be accepting all sorts of liabilities and additional charges. It has happened.

Rental agencies usually charge you a “loss of use” administration fee since they claim, and rightfully so in most cases, that the resale value of the car has been reduced if you were involved in an accident. Some insurance companies will not pay extra fees such as this, so it’s wise to check with your own company.  If you are to be covered by your credit card for rental insurance you usually must have that rental billed to that card. If you have a coupon for a free rental or if you’re renting with frequent flyer points, even though you provide the credit card number at time of rental to hold the reservation, if no charges are made to the card by the rental company you may not be covered by the card company’s insurance.