Car rental - Should you buy the insurance?

(Image: Ambro)

If you've ever rented a car then you probably have experienced a pitch by the rental car company's customer service agent to buy the optional insurance coverage they sell, in particular the LDW (loss and damage waiver) or the CDW (collision damage waiver).

For frequent business travelers the pitch is more muted or avoided altogether for renters who belong to programs like Hertz # 1 Gold, and have already indicated their insurance preferences in a customer profile, and can pick up the car directly and bypass the counter.  For less frequent renters, however, the sell-job can range from concise and polite to lengthy and fear mongering.  (Or sometimes concise and fear mongering to lengthy and polite...)

The good part about these waivers is that subject to the limitations of the vehicle you rent, you can return the car with damage and not be subject to the costs of repairs should something happen.  (No, it doesn't cover you if you trash the inside of the car, or if you use a vehicle for a dump run, etc.)  An additional benefit of LDW/CDW is that even if you have outside coverage (personal auto insurance, credit card, travel insurance), the paperwork following a mishap will be relatively swift because the matter is only between you and the rental company.

The bad part is that LDW or CDW coverage is expensive.

A friend and client of mine recently rented a car in Phoenix for 5 days during the spring training period.  When he picked up the car, the agent asked him if he wanted "full coverage".  He answered "yes" (doesn't everyone want full coverage?) but neglected to ask what that would cost.  When he returned the vehicle the total fee for the rental plus insurance coverages was $700.  Lesson learned for him.  ("Full" coverage probably included additional liability coverage and coverage for loss or damage to the contents of the vehicle, in addition to the LDW/CDW.)

Whether or not the car rental company's appeal to you to buy the insurance is pleasant or annoying, you owe it to yourself to come equipped beforehand with the knowledge to decide if you should or should not take out the coverage.  This way you can make an informed and confident decision, not a hasty one under pressure.

When I'm asked by clients as to whether they should buy the insurance I am careful to never give a definitive answer for the simple reason that I am not their insurance agent.  However I suggest they consider what follows below.


First check with your insurance agent

You can also read your policy - it may state it clearly there - but if isn't clear then you should contact your agent to find out exactly what your personal auto insurance covers when you rent a car.  If you rent cars outside of the U.S. and Canada then you need to get details for the coverage you receive - if any - overseas.

If your coverage does extend to rented vehicles, but has high deductibles for damage and/or you do not carry collision insurance at all because your car, like mine, is too old to merit it, then know that you may be exposed.

One other thing to consider If you rent cars fairly often, is to ask your agent if the insurance carrier offers an add-on to your policy to cover rental cars, and which goes beyond the coverage you carry for your own vehicles.


Coverage by your credit card

Some cards have coverage for rental cars, but as a rule it is secondary coverage.  What that means, is that it kicks in when your own insurance does not cover all or part of damage to a rental car.  As with your personal insurance, it pays to know what it will and will not cover.

For example, here is a link to the VISA Signature page that details the benefit of that credit card's program.  This is just the current (August 2011) program of coverage offered by one type of VISA card.  You need to determine whether your credit card provides protection, and if so, exactly what it covers.

The VISA Signature rules are pretty straightforward and common sense, but bear reading.  For example, the benefit only applies for standard vehicles: rare, super-expensive, or vehicles that carry more than eight people are not covered.  Rentals in Israel, Jamaica, or Ireland (both "Republic of" and "Northern") are not coverered.  Also the coverage is only for the vehicle.  It does not cover injuries to the car's occupants or others.

It might seem obvious, but in order to receive the benefit you must use the credit card as the method of payment for the car rental.


Travel insurance

Car rental coverage is either included or can be added as a supplement to travel insurance policies, but usually it is secondary coverage, as with credit card coverage.

One exception to that currently of which I am aware is Access America.  They offer $35,000 colision damage/loss for $9 per day, and it is primary insurance, which means that it would pay first.  You can buy this coverage on a stand-alone basis, or as part of a wider travel insurance policy.

Bear in mind that Access America (or any other travel insurance) is going to have its own exclusions and limitations (for example, they also do not cover rentals in Israel, Jamaica, or Ireland) so read the fine print carefully before buying the policy to be sure that it will apply to the specifics of your use of a rental car.


When should you buy the car rental company's coverage?

Only you can decide this, but I'll give you one example from my experiece where I think it is sensible.

Every year I run the Reno-Tahoe Odyssey, a 178-mile 12-person relay in the Reno-Tahoe area.  My half of the team uses a local teammate's minivan, so rental coverage there is not an issue, but the other half of our team rents a large SUV from Hertz.  Even though the two people that share driving responsibilities have their own insurance and credit card coverage, the six people in the vehicle share the extra cost of LDW (Loss Damage Waiver).

Why?  By doing so it means that if anything happens to the vehicle while they are using it, one person isn't stuck dealing with the bureaucratic aftermath involving the car rental company and other entities.  The couple of bucks extra that each one of the six people in the SUV pays is money well spent.


In conclusion

No one can tell you whether you should or should not take out the car rental company's LDW or CDW policies.  You need to make that decision.  But being well-informed of the coverage you may (or may not) already have, will help you make a good decision when you are at the rental car counter about to pick up your vehicle.