Rental Car Insurance: Not a No-Brainer

Don’t be embarrassed if you’re not sure whether to get the “rental car insurance” or not.  I recently paid nearly $300 for a week long car rental while on vacation!  That’s why I decided to include the subject on this site.  Stop me if you’ve heard this one before:

Rental Car Agent: Hello unknowing customer!
You: Hi, I booked the standard vehicle online for three days for a total of $65.00.
Rental Car Agent: Yes, I have your reservation right here.  How do you intend to cover this vehicle?  Would you like our insurance coverage?
You: Sure, what’s the total for the three days?
Rental Car Agent: With full coverage, your three day total is $135.00.
You: Eek…

What Coverage Does the Rental Car Company Offer?

Let’s first address the fact that most rental car “coverage” is not actually insurance at all, rather a selection of waivers and “additional coverage” that may supplement your current car insurance policy or provide front-line coverage where you have none in place. Here are the basic offerings:

Collision Damage Waiver – waives your liability for damages to the rental car caused by collision while you are responsible for it. Think of this as the “collision” coverage on your car insurance policy.

Loss Damage Waiver – waives your liability for damages to the rental car caused by something other than a collision. This is the equivalent of comprehensive coverage (also known as “other than collision”) on your car insurance policy.

[What is the difference between collision and comprehensive coverage?]

Personal Accident Insurance – this is similar to medical payments or personal injury protection on an auto insurance policy. This would cover medical and ambulance expenses that may result for you or your passengers in the event of an auto accident.

Roadside Assistance – Again, similar to roadside assistance offered by most insurers. We’re talking flats, running out of gas and locking your keys in the car.

Supplemental Liability – Don’t fall for this one. While TTAI usually never instructs our readers NOT to purchase liability car insurance coverage, your best bet is to maximize the liability on your current auto policy, which may cost less per year than you’ll pay for a few days coverage in the rental car.

Theft Prevention – This is coverage for your personal items while they are in your car. This is not necessary if you have a homeowners or renters insurance policy, as your personal items are covered by both of those policies if insured properly. Believing the contents of your car are insured by your auto insurance policy is a common insurance myth.

As you can see, most of these options are unnecessary if you already have proper insurance. The rental car company simply rakes in cash by offering ultra-expensive “add-ons.”

The reality is you can probably statistically “get away” without paying through the nose for all of extra options the rental car company will try to shove down your throat. That is, if you already have an auto insurance policy in-force.

What Are My Options?

There are a few things you can do to make sure you don’t become another victim of the “rental car insurance scam.”  To ensure you’re covered prior to your trip, call your independent agent or direct insurer, along with your credit card company to verify exactly what’s covered on your current policy and what’s available to you.

Tip: Your insurance agent will likely tell you to purchase the rental car coverage in order to protect themselves in the event you aren’t covered for any type of claim.

Under the typical personal auto insurance policy (assuming you have high enough liability limits and physical damage coverage), additional insurance isn’t necessary.  But keep in mind that you’re still responsible for paying your deductible for physical damage claims in most cases.  Be sure to verify this information in writing before renting the car.

Even if you have full coverage, be sure to inquire about “loss of use” coverage and various other “administrative costs” associated with damaging your rental that are not covered by an auto insurance policy. This will protect you against additional charges in the event you damage a rental car.

You may be charged a daily limit for each day the damaged rental car cannot be rented as a result of the accident you caused. The rental car company considers this a potential loss of income, and if you read the contract closely, you will see that you agreed to this.

Know Your Credit Card Issuer’s Restrictions

Next, call the credit card issuer you intend to pay the rental with.  Many credit card companies offer car rental insurance coverage solely for using their card.  It is suggested that you do this well in advance of your trip. Be sure to speak to someone who is qualified to discuss the details of the coverage and get it in writing.

Stating you thought you were insured does not stand up in court.  Make sure to ask if you have loss of use coverage and if they pay all physical damage costs or just your deductible for physical damage.

Also note that there may be restrictions on the type of vehicles they will cover. Pick the wrong vehicle and you may have no coverage at all. For example, credit card companies may not extend coverage to pick-up trucks or vans.

Why? They don’t want to get caught up insuring a vehicle that might be being used for commercial purposes (think delivery or moving). You would need commercial auto insurance coverage for any of those purposes.

Additionally, your credit card company may not insure a rental vehicle based on its value. Regular commuter cars? No problem. Rent a car with a value above $30,000 or $50,000 and they may not cover it. You will have to pay to play when it comes to renting luxury vehicles. If you can’t afford the rental car company’s insurance…you may want to stick with the Teal Chevy Malibu on the lot.

But I Don’t Own a Car and Don’t Have Insurance

It is recommended you purchase a named non-owner auto insurance policy if you don’t own a car or aren’t currently insured.

Even with the named non-owner policy, you are subject to the same pitfalls as someone who does own a car and carry insurance.

The rental car company requires “full value” coverage – whereas car insurance policies pay out on an actual cash value basis. This means they will pay THE LESSER of the cost to repair or replace a car you damage. If the car you rent has depreciated 30% due to the 50,000 miles put on it in a mere six months, your insurer is NOT going to pay the “full value” stipulated in your rental agreement.

Beware: If you damage the rental car and it’s fixed BEFORE your insurance adjuster gets a chance to see it – every car insurance policy (or property policy) includes a contractual obligation that permits the insurer to review any property damage in order to determine how much they should have to pay out. If the rental car company fixes the car before you adjuster sees it…you may be seriously out of luck.

You may also be charged for “loss of use” of the rental car while it’s being fixed because the rental car company stands to lose money while their vehicle is out of commission. So there are plenty of pitfalls that aren’t entirely obvious.

Rental car insurance doesn’t have to ruin your trip.  Simply make the necessary phone calls, speak to qualified people, ask for the information in writing, and make sure you are completely comfortable and fully understand your coverage.

You pay a lot of money for the coverage (or damage if you are not covered), so don’t feel like you’re putting anybody “out” by asking questions.  People who aren’t concerned with assisting you up front certainly won’t help you after an accident has occurred if it turns out you are not covered.

*For the record, the only way to be 100% sure you’re covered is to buy the rental car insurance coverage. It may cost a whole lot more than the advertised price, but unless you’re an attorney or an insurance agent, you may get lost in the contract terminology and end up with gaps in coverage.

So, there you have it. You don’t necessarily HAVE to buy the rental car insurance add-ons, but you are taking a certain amount of risk if you don’t.

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