Dirty Little Secret #5: Rental Car Insurance

If you thought car insurance was tricky, you can easily be tricked into buying optional insurance products pushed by the rental car companies. The dirty little secret about the insurance offered by rental car companies: most of the time you won’t need it if you rent a car in the US, have a car insurance policy, a national credit card (e.g. Visa cards, Gold and above Mastercard, American Express and a some Discover cards), or comprehensive travel insurance.

But you need to read the fine print, like my furry friend here, to be certain.

What Are Rental Car Companies Trying To Sell You?

Most rental car companies like Hertz, Avis, National, Budget and others offer four types of optional insurance when you rent their cars. They are financially motivated to sell you these addons, in part because they are very profitable to the company with 50% or more in sales fees.

1. Supplemental Liability. All car rental companies are required to cover their vehicles with the state-mandated liability minimum. However, you will be asked to buy supplemental liability insurance for $7 to $15 per day to increase these minimum amounts. Supplemental policies won’t pay if you violate the rental car contract.

2. Collision or Loss Damage Waiver (CDW or LDW or CDI). If you do not pay the car rental company to waive damage, and your rental car is stolen, or damaged by accident, vandalism, weather (hail), etc., — which will set you back from $9 to $19 a day — you or other insurance you have must pay the full cost of repair, plus administrative and related charge.

3. Personal Accident Insurance (PAI). PAI insures drivers of a rental car and their passengers for accidental medical costs, emergency care and accidental death during your rental trip, up to a certain limit. The price for this is usually $5 or less per day. In our opinion this is unnecessary coverage.

4. Personal Effects Coverage (PEC). For $1-$4 per rental car day, you can purchase PEC to compensate you for loss or damage to your personal belongings while renting the vehicle. Typically you must file a police report for loss and payments are capped (e.g. Hertz won’t pay more than $600 per person.) In our opinion, this is useless coverage.

What insurance coverage do you really need?

It depends on where you rent (US or Overseas) what other coverages you have (primarily auto insurance and credit cards) and what kind of car you are renting. Here’s a rundown of what’s offered by the car rental companies and where else you may be covered.

Am I Already Covered Somewhere Else?

Auto Insurance Policy

In general, you probably already have coverage for most cars you rent in the US. However, this may not be true for rentals outside the US. You should seriously consider buying the coverages from the rental car company when renting overseas.

Here’s the typical coverages and exceptions in your personal auto insurance policy as they apply to rental cars:

· Supplemental Liability: Generally, your auto insurance liability coverage will also cover you in a rental car you drive. If your liability coverages are higher than state minimums, even better.

· Collision/Loss Damage Waiver: If you have collision and comprehensive coverage, it typically extends to your rental car subject up to the value of your insured car. If you rent a more expensive car, you will not be covered for the difference in value between your car and the rental car. It’s probably worth buying more protection.

· Personal Accident Insurance: If you have personal injury protection (PIP) or medical expenses coverage on your auto policy (and most people do), you do not need this.

· Personal Effects Coverage: Likely covered in your homeowners or tenants policy. If not, don’t bother with it as the benefits are limited.

Credit Cards

Most US issued credit cards — including all Visa Cards, gold and above Mastercard, most American Express and just a few Discover cards — provide coverage for loss or damage to cars you rent and charge to the credit card. There may be other limited benefits, but collision/loss damage is the most common and useful.

Here’s the typical coverages and exceptions in credit cards:

· Supplemental Liability: None

· Collision/Loss Damage Waiver: Coverage provided on many credit (not debit) cards but follow the rules carefully. Coverage is often secondary to your own auto insurance if you have that, and primary if you don’t. Important rules include: Must charge car rental to the card; coverage limited to 15 or 30 consecutive rental days; some countries and some expensive or exotic car models are not covered. Be sure to check the fine print.

· Personal Accident Insurance: No medical coverage but usually coverage for Accidental Death.

· Personal Effects Coverage: Depends on the card.

Tenants and Homeowners Insurance Policy

The only real benefit potential benefit is for lost or stolen personal property to cover items under PEC:

· Supplemental Liability: None.

· Collision/Loss Damage Waiver: None.

· Personal Accident Insurance: None.

· Personal Effects Coverage: Likely covered in your homeowners or tenants policy. If not, don’t bother with it as the benefits are limited.

Travel Insurance Policy

If you purchase comprehensive travel insurance, it may include primary collision/loss damage insurance, personal accident and baggage insurance. Make sure you check that each benefit is in your plan. Also, make sure there’s a hotline you can call, especially from overseas, if you get in an accident.

· Supplemental Liability: None.

· Collision/Loss Damage Waiver: Covered under collision damage insurance.

· Personal Accident Insurance: Covered under medical expenses and accidental death and dismemberment.

· Personal Effects Coverage: Covered under baggage insurance.

The Bottom Line

US Car Rentals: Don’t buy

· If you have an auto insurance policy with collision and comprehensive coverage OR

· If you have a credit card that will provide CDI/LDW/CDW collision coverage and you don’t need more liability coverage

· The rental car is worth about the same or less than your insured car

Non-US Car Rentals: Consider buying

· The rental car company’s liability and collision/loss damage protection

· It’s not worth the hassle or exposure in a foreign country with different laws. In Mexico, for instance you can get thrown in jail unless you can prove on the spot you have liability insurance.