Do I Really Need to Purchase Rental Car Insurance?

After a long flight you finally reach your vacation destination and the next thing on the agenda is to pick up a rental car. You meet a smiling rental car agent behind the counter and begin the process of giving him all the info needed to rent a car. Toward the end of the conversation the rental agent gets very serious. You know the big question is coming. “Would you like to pay for our car insurance protection policy?” He asks you like your life may depend on it. At first you say no thanks because your insurance policy should cover a rental car in the event of an accident. The agent's eyebrows furrow as he explains to you the earth shattering consequences of not purchasing their coverage. You begin to have second thoughts. Does your insurance policy have enough coverage? Should I just take the insurance because I'm exhausted after a long flight and just want this person to stop badgering me about insurance?

Before your eyes glaze over and you pay an arm and a leg for the rental company's car insurance policy, let's break down what is already covered by your insurance policy and the protection benefits you may have through your credit card company. We'll take a look at what rental insurance covers, what your insurance covers and whether it will be redundant and some situations where it actually makes sense to purchase the extra insurance.

Rental Car Insurance Lingo

Have ever been handed a rental car contract and thought to yourself, “What language is this? Does this thing come with a decoder ring?” There are so many confusing terms and acronyms on rental car contracts and quite frankly, you don't have ten years to sit there and figure it all out. Here are some terms commonly found on rental car agreements and their meanings. No decoder ring needed.

Loss/collision damage waiver: Know as LDW, loss damage waiver is also referred to as Collision Damage Waiver or CDW (tricky with the terms aren't they?) LDW lets you off scott free for any costs associated with your rental car if it is stolen, vandalized or damaged in a crash. This may also include what the rental car company deems as loss of use charges. These are charges that rental car companies charge you for any profits they loose when the vehicle is in the repair shop.

Liability: You may see this on the rental car agreement as supplemental liability insurance or SLI. Rental liability insurance covers you if you damage another vehicle or property while driving the rental car. It may also pay any medical expenses for others who were injured in an accident that you have caused.

Personal accident insurance: Also written as PAI, this covers medical costs for you and your passengers if you are hurt in a crash while in the rental car.

Personal effects coverage: Personal effects coverage, abbreviated as PEC, cover any personal items that are damaged or stolen from your rental car.

How much is rental car insurance going to cost me?

Costs vary from company to company and it also depends on the level coverage you decide to purchase. The bottom line is, it isn't going to be cheap! The loss waiver by itself may cost between $10-$30 a day. Add another $10 for supplemental liability and then an additional $5 each for personal accident insurance and personal effects coverage.

When you tally everything up, it's easy to pay $40 a day or better to be fully covered by rental car insurance. Surprised? What's even more surprising is the fact that rental car insurance can cost more than the daily price of renting the actual car. An economy car costs in the neighborhood of $40 a day and maybe less if you have discounts like AAA. After you pick your jaw up off the floor, we'll talk about your auto insurance policy and what it covers as far as rental cars are concerned.

Am I already covered under my personal auto insurance policy?

Before you decide to empty your wallet out and pay for that expensive rental car insurance you may want to do a little research on your personal auto insurance policy first. Depending on what coverage you have and safeguards you have in place, purchasing that rental car insurance may be redundant and a waste of money. Here are some things to check up on.

1. Check your regular personal auto insurance. If you are not an insured driver, skip to step two. If, like most people, you are already covered under a policy that keeps you legally on the road in your normal everyday life then there are a few questions to ask.

Do I have adequate liability insurance?

Most people will have liability coverage on their insurance policy. It is often required by state law and the coverage will help pay for property damage and other people's medical costs if you are the party at fault in a crash. Liability insurance will typically carry over when you drive a rental car. If you feel confident with the level of coverage you have, then there is no need to purchase supplemental liability coverage.

Do I have comprehensive and collision coverage?

This coverage is a little more tricky. Fewer people actually have this coverage. Comprehensive covers your car against non-driving related incidents like vandalism, fire and theft. Collision will help cover damages to your car from an accident no matter who is at fault. Drivers with older, higher mileage cars tend to drop comprehensive and collision because it doesn't make sense to make massive repairs to a car with a lower value and it also helps the insured save some money on their policy premium.

If you do carry comprehensive and collision on your personal auto policy, you may decide to skip the rental car company's loss damage insurance. Please note though, there is a little hazy gray area if you decline the supplemental coverage. The rental company can still charge you for loss of use if you return a damaged car. Loss of use fees recover money the rental company could have made by renting out a vehicle that is side-lined for repairs. This is not usually covered under your insurance plan but it is worth talking to your insurance agent about and may give you a moment to ponder if you should pay the extra money for the rental car company's LDW coverage.

2. What does my health insurance cover? Check your health insurance policy to see what your coverage looks like. If you have personal injury protection and/or medical payments coverage it may be over the top to add the rental insurance company's personal accident insurance.

3. Will my homeowner's or renter's insurance policy cover anything? It's a good idea to check your homeowner's or renter's policy. Technically these policies will cover your belongings no matter where they are and that includes inside a rental car. If your personal items are stolen your homeowner's/renter's should cover you and you can decline the rental company's personal effects coverage. It's always a good idea to check your coverage limits and note that if you are carting around something very expensive (like jewelry) you may want to obtain a rider.

4. Does my travel insurance cover my rental car? Your travel insurance might include rental car collision coverage which is similar to the rental agency's loss damage waiver. It's always a good idea to check because the travel insurance version of this coverage will cost a lot less than what the rental company is offering.

Make sure to double check if the travel insurance is primary or secondary. If it is primary, in the event of an issue, your insurance company won't have to get involved. If the travel insurance is secondary, then your insurance will have to kick in first before the travel insurance coverage.

5. Does my credit card offer any rental car benefits? Some credit card companies offer a little bit of rental car insurance coverage as a perk for using their card. Most times those benefits only apply if you use the credit card offering the insurance to book your rental car. Call your credit card company and ask what their benefits and policies are as it applies to rental cars.

Benefits will vary from card to card and there may some limitations on the benefits. For example the credit car company may put a time frame on the benefits. They may only cover the vehicle for 15 to 30 concurrent days. They may also place caps or limits on the insurance. If they provide collision coverage it may only be up to $50,000.

Most credit card companies offer towing and theft. Rarely will they cover medical and personal property and some will cover loss of use charges and others will not. It's not uncommon for the credit card company to exclude some vehicles like luxury cars or large vans. They also might not cover you in countries where drivers are at a higher risk.

Plan on any coverage from the credit card company being secondary. Your insurance will have to pick up first before the credit card rental car insurance will cover anything. You may also have to decline any rental car insurance in order to receive any benefits offered by the credit card company.

So when should I get rental car insurance?

There are a few instances when it makes sense to purchase the rental car company's insurance. If you are already covered in any of the scenarios above, save your money and decline the insurance. No sense being double covered!

1. You're trip is for business. Let's face it, most employer's won't cover your rental car insurance if you are mixing business with a little bit of pleasure. This would be a good time to find out from your insurance agent if your personal policy will cover you. If your trip is all business and no pleasure, then your personal insurance most likely will not cover you and it might be a good idea to spend the extra money for the rental company's insurance.

2. You have state minimums or no insurance at all. If you have very minimal insurance, or no comprehensive or collision, then any damage to your rental car is going to cost you big bucks, out of your pocket. This would be a good time to cover yourself and spring for the rental car insurance. If you are not carrying any comprehensive or collision on your personal policy, then spring for the loss damage waiver at the very least. If you have no insurance at all, then it makes since to get the supplemental liability as well as the loss damage waiver.

3.You are driving a rental car in another country. Most times, your personal insurance will not cover you if you are driving in a foreign county. This would be a good time to check with your credit card company or check your travel insurance to see if you have any coverage. Some credit card companies will exclude certain countries from coverage so always make sure to double check with them before traveling.

4. You are concerned an accident in a rental car may negatively affect your personal insurance. This is a valid concern, especially if you already have some incidents hanging out on your motor vehicle record. If you make claim on your insurance, your rates will go up. This is a good time to purchase the rental car insurance. If you are in accident with your rental car, the coverage you purchased through the company will cover the damage and your personal insurance rate will go unscathed.

5.You figure better safe than sorry. You want a nice relaxing trip and the thought of having to deal with your personal insurance, and the aftermath in the case of a rental car accident, is just too stressful. Fair enough! If your peace of mind is worth some extra money to purchase the rental car company's insurance, then you should absolutely go for it. Vacations are supposed to be fun and not having to worry about the what ifs is worth a little extra.

At the end of the day you want to do your homework before you travel. Never assume that you are covered and realize that rental car companies are not offering you rental insurance to be nice. They make a lot of money off of people who don't know what their personal insurance covers. Contact your insurance agent, credit card company and travel insurance company so that you are in the know. There's nothing worse than being half asleep at the rental counter and spending more money that you need to because you don't know if you are covered and you just want to go to sleep.

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