Do You Need to Buy Rental Car Insurance?

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Whether you're renting a car for a day or an entire week, you've probably had a friend or relative tell you to waive the offered insurance. "Your credit card has it covered," they'll say. Plus, doesn't your car insurance also cover rentals? But then the agent insists there are lots of limitations and exclusions, and paying the extra $10 to $25 per day limits your exposure and provides comprehensive protection. Do you cave or trust that you're well insulated?

That all depends. "At the end of the day, whether you purchase the insurance or not, you should do whatever it takes to be completely comfortable behind the wheel of that car," says Morgan Quinn, personal finance expert and features writer for GoBankingRates.

What's Included.

Rental car agencies typically offer four types of coverage: liability, personal accident, personal effects, and loss damage waiver, a.k.a. collision damage waiver. Exact names and coverage details vary by company, but here is a general overview:

  • Supplemental liability protection (SLP): Covers liability claims made by a third party.
  • Personal accident insurance (PAI): Covers medical expenses, including accidental death and ambulance expenses, for renter and passengers.
  • Personal effects coverage (PEC): Covers the loss or damage of personal belongings.
  • Loss damage waiver (LDW), collision damage waiver (CDW): Reduces or waives the fees and liabilities connected to the loss or damage of the vehicle.

Rachel Cowart, regional account manager at Enterprise Rent-A-Car in Atlanta, Ga., notes that renters at Enterprise, Alamo, and National (all part of the same company) can always waive coverage but doing so exposes them to risks. Although Enterprise pays for damage if you don't opt for the policy and lack other insurance, you're responsible for reimbursing the company.

Insurance in Your Pocket.

Some coverage offered by car rental agencies duplicates insurance many consumers already have. Homeowner's and renter's insurance, for example, generally cover off-premises theft -- as does personal effects coverage from rental car agencies -- although deductibles can be quite high. Your personal auto insurance may include collision and personal liability coverage (some states mandate this), which extends to rental cars.

However, using your own policy in the event of a mishap means paying the deductible and likely higher premiums in future. Renters (and companies whose employees rent cars) often don't want to deal with the paperwork or the short- and long-term costs of filing a claim with their primary insurer, Ms. Cowart says. They consider that reason enough to spring for the proffered coverage. Allstate's website provides a similar rationale for buying rental car insurance.

Credit Card Coverage.

Insurance that comes with a credit card is broad but not rock solid. Even Enterprise advises renters to forgo purchasing collision damage waiver (CDW) from the rental car company if their credit card provides collision coverage. For the most part, though, credit cards offer only secondary insurance; i.e., if you already have insurance for your home, apartment, or car, you must report an incident to that carrier first. You'll probably have to pay deductibles and your premiums may rise. If you don't have primary insurance, then the card's coverage becomes the primary.

In this case, some hefty costs could wallop you. Visa, for example, reimburses cardholders for damage due to collision and theft, loss-of-use charges imposed by the rental company, and towing. MasterCard's benefits are nearly identical. These terms are similar to the collision damage waiver offered by rental agencies, but the cards' coverage pertains to the car only -- it doesn't help with personal liability claims, damage to anything outside the car, theft or loss of personal belongings.

Exclusions also abound. Credit card coverage may not apply if you're renting an expensive or exotic car; a truck, moped, or motorcycle; or certain vans. To ensure the card's coverage for other types of vehicles, you must decline the CDW from the rental agency, pay for the entire rental with your card, and rent the car for less than fifteen days (Visa) or 31 days (MasterCard) in your country of residence.

American Express offers slightly better terms than other card issuers. Coverage with its cards includes medical up to $5,000 per person, personal property up to $1,000 per person, and accidental death and dismemberment up to $200,000 for the cardholder and $20,000 for passengers. Even so, Amex's rental car plan doesn't cover damage to other vehicles or people, and many of the same exclusions listed above apply. Amex offers a rental premium for $24.95 that increases coverage amounts and types of cars covered. It also makes the coverage primary instead of secondary, but it still doesn't include liability protection.

Lower-Cost Alternatives.

Rental car insurance often is cheaper -- sometimes by half -- with a third-party provider, such as Protect Your Bubble or Travel Guard, than with the car rental agency. Note that you must buy the policy before signing the rental car paperwork.

What to Say at the Counter.

Do your homework before arriving at the rental car counter. Contact your primary insurer and ask about coverage, and then do the same with your credit card issuer. If you decide that purchasing additional insurance is the best option, shop around and compare third-party plans and prices. It's a bit of work, but you might save a bundle of money and a load of headaches.