Rental Car Insurance, Should I Purchase It or Not?

We oftentimes are asked whether it is wise to purchase insurance coverage on a rental car from the rental company. The answer is not a simple one. Our response is typically, “It depends.” You will say, “Typical attorney response.” However, when deciding whether to purchase rental car coverage, you have to weigh many variables. Whenever I rent a car, I purchase the ‘loss damage waiver’ coverage and nothing else. I have liability and collision coverage under my policy of insurance but I purchase this additional coverage to protect me where my coverage falls short. For example, if I were in an accident and my collision coverage were to pay for the damage to the rental car, I would be responsible for the deductible. If the rental car was out of service for repairs, I would be responsible for the loss of business revenue to the rental car company while that car was under repair or a total loss, not my insurance company. If the rental car was diminished in value due to the damage to that car as a result of the collision, my collision coverage would not cover that damage either. Instead, I would be responsible for that diminished value. By purchasing the loss damage waiver coverage, I avoid having to pay any of those damages as it is the rental insurance company’s responsibility to satisfy them.

However, be careful. I recently met with a client who had to rent a car due to an accident that was not her fault. She had insurance coverage of her own but purchased additional coverage from the rental car company as an added precaution. The insurance company for the at-fault party agreed to pay for the rental car expense but refused to pay for the additional coverage she had purchased as it was not necessary for the rental of the vehicle. The best rule of thumb is to contact your insurance company prior to renting a vehicle to determine as to what extent you would be covered under your policy of insurance in the rental car before deciding whether to purchase any additional coverage from the rental company.

RENTAL CAR INSURANCE DECISION POINTERS

Before you rent, find out if your auto insurer or credit card issuer has it covered.

According to the New York Times, before visiting a rental car counter, it’s wise to make two telephone calls: one to the insurer that covers your personal car and one to your credit card company.

“Many people feel pressured to buy the rental company’s insurance coverage on the rationale of better safe than sorry, even though it can cost up to $30 a day.” said Norma Garcia, a lawyer with Consumers Union, the advocacy and policy arm of Consumer Reports. But if you verify coverage you may already have before setting out on vacation, she said, “You can be safe and not sorry.”

Many but not all credit cards offer rental coverage at no extra cost as a perk for customers when they pay for the rental with the card and decline the rental company’s offering. Coverage varies, however, and depends not only on the card’s payment network – like Visa or Mastercard – but also on the issuing bank, according to a recent analysis from CardHub.com, a card comparison website.

To avoid surprises, contact your card company before renting to confirm that your card indeed offers insurance protection and ask about any limits and exclusions. “A simple call ought to do it.” Garcia said. “Ask for the terms in writing.” said Loretta Worters, a spokeswoman for the Insurance Information Institute, an industry group.

Most card policies cover rentals of up to 30 days but others limit coverage to rentals of no more than two weeks. Some exclude some sport utility vehicles, trucks and expensive cars. Many card policies exclude coverage in certain countries (Ireland, Israel and Jamaica are often left out as are Australia, Italy and New Zealand.) Citibank and Discover credit cards may come in handy when traveling internationally, according to the analysis, as they cover cars globally.

The analysis evaluated 10 large card issuers on 11 criteria including the duration of coverage, exclusions and the card’s claims process. Citi cards generally offered the most favorable insurance coverage overall, the analysis found, although Citi’s claims process may require a bit more paperwork than other cards. USAA American Express cards also got high marks.

Of the four card networks, MasterCard and Visa scored highest overall for their insurance offering, the report found.

Keep in mind that credit card rental car insurance is usually secondary or backup coverage that pays for expenses like your deductible that your personal auto policy may not cover. And the card policies generally do not provide liability coverage for damage to other cars or injuries to other people. So before renting, check the coverage on your personal auto policy.

“If you own a car, the auto insurance you carry on your personal vehicle often covers a rental car at similar terms.” Worters said. (You usually must be using the car for personal reasons, not for business.)

If you have dropped optional coverage on your car, like collision coverage, to save on premium costs, your rental may not be covered if it’s damaged. In that case, she said you should consider buying the rental company’s “loss damage waiver”, also called a collision damage waiver, so you won’t be responsible for damage to the car.

Rules vary by state, however, and in some states, your rental may still be covered if you drop optional coverage on your personal policy. So confirm details with your insurer.

In most states, personal auto policies do not cover ‘diminishable value’ or a drop in the car’s value because of damage and repairs. “Some insurers may add the option with a special ‘endorsement’ on your policy.” Worters said.

“Rental car companies are required by law to provide liability coverage with the rental at the state-mandated minimum which is low.” Worters said. (Liability coverage protects you if you injure someone or damage their car in an accident.) Rental companies may sell ‘supplemental’ coverage with higher limits, but if your personal auto policy is adequate, you probably do not need to buy extra, the National Association of Insurance Commissioners says.