One of the most famous pieces of advice for getting a cheap rental car is to decline the insurance provided by the rental car company,
as the price of the insurance alone could be equal to or up to twice the amount of the rental itself. Almost all of us straight out refuse rental insurance as we are covered by our personal auto policy and additionally by credit cards. Are you really covered though? According to a survey by Progressive Insurance only 26% of the consumers review their credit card policy or contact their insurance agent to see if they need additional coverage. This is important because in most cases you are not covered for everything. There are still a few holes that could put a serious hole in your wallet. So its time to question the traditional advice.
What is covered?
To answer this question, you should understand what “types” of products are offered by rental car companies. There are 4 types of insurance related products that are being sold -
- Collision Damage Waiver (aka Loss Damage waiver) : This is not an actual insurance. It waives the right for a rental car company to recover money from the renter if the vehicle is damaged or stolen. Coverage from personal auto policy : If you have collision and comprehensive coverage in your auto policy, the coverage and limit will generally extend to your rental car as well.
- Liability Insurance : As it says this insurance covers any liabilities you may have in case of an accident. Coverage from personal auto policy : Your existing limit extends to the rental car.
- Personal Accident Insurance (PAI) : This provides coverage for accidental death and medical expenses for the renter and passengers. Coverage from personal auto policy : Same as before, if you have accident coverage in your personal policy, the same applies to the rental car. Also, if you have medical insurance, they will pick up the rest of the bill if your auto policy limit is low.
- Personal Effects Coverage (PEC) : This provides coverage to your personal belongings. This could also be included in your auto policy. But more probably, your home owner’s or renter’s insurance will provide this coverage to rental cars as well.
For all the above your policy deductible applies. If you have a high deductible policy, keep that in mind. BUT, if you use a major credit card to bill the entire amount, they might pick up that deductible bill and a little more.
Secondary coverage from Credit Cards : Most of the major credit cards (Amex, Visa, Mastercard, Discover), esp. their premium brands, offer the Collision Damage waiver. It is a secondary coverage (only some cards provide them as a primary option), meaning, you should claim it with your personal auto insurance first. For portions that are not paid by the personal auto coverage (example: deductible) the credit card will pay. The credit cards will also pay some fees that are not usually paid by the auto insurance (more on that below). The credit card will also pay your deductible if you have one with your primary insurance.
OK. So it looks like I am covered. What is the problem here?
Well, the problem as I mentioned briefly in my last part, is the FEES. There are some fees that are NOT covered by auto insurance, at least not by default. These include -
- Loss of use fees – The rental car company can charge you to cover their loss of revenue when the car that you damaged was the in body shop.
- Administrative fees – A charge just to deal with you.
- Diminution of values fees – Because you had an accident in the car and the accident goes into the car’s Carfax record, the car’s value could go down, they pass that bill on to you.
These 3 fees themselves can range from $1000 to $10000. And if you check to see after-the-fact if your insurance covers you then you are taking a big risk. I called 3 insurance companies I have dealt with before – Amica, State farm and MetLife.
- Amica said they will cover these fees (except the admin fee) on a case-by-case basis. When I pushed for more information, they said that they require the “fleet utilization log” (to actually prove the rental company lost revenue without this car) from the rental car company and the diminution of value is also decided on a case by case basis. In short, they can pay less than what the rental company asks for.
- State Farm said that rental coverage is extended with the same deductible, but these fees are NOT covered by default. If you want them to cover it you have to get a rider (~$25-30 for 6 months). There is no specific amount (like your liability limit) they would pay and they required almost the same documentation as Amica.
- MetLife was better. I don’t have a current policy with them or know anyone who does, so I couldn’t get the specifics, but they verified they generally cover these fees for the policy holders. And they also said they will provide assistance to fight the extra fees that they don’t cover.
For example, if a rent-a-car charges you $900 ($30 per day loss of revenue for a car and claim that the car was in the body shop for 30 days), Amica and State Farm require the rental car company to provide documentation that they didn’t have any other cars of the same class on all of these 30 days. The rental car companies are not required by law (in most states) to provide you with this documentation claiming its proprietary information. [Note: there are a few states like New York that require the rental car company to provide this documentation] So Amica and State Farm would not pay this charge. The rental company can come after you because you signed a document saying YOU are taking full responsibility to pay for any and all damages when you decline their insurance.
But my credit card company’s policy says they will cover these fees
Yes and No. Amex and MasterCard both said they require the loss of use fees to be substantiated by the fleet utilization log and it is my responsibility to make sure they get them. Otherwise they won’t pay. Visa Signature folks were a little lenient, they said they usually pay unless it is an outrageous charge and they also said they will make as much effort as possible to get all the documentation and not bother me. If the rental agency sends me any mail, I can just forward it to the Visa signature claim center. They still couldn’t come up with a number for what a reasonable pay out is, but at least there is a good chance that it will be paid. And none of them said they would cover the diminution of value fees. I was always under the impression that Amex had the best customer service (esp. when their Premium Rental Protection makes it sound like you are covered with no hassle) and I hold one of their highest class of cards so it was a little disappointing. So, Visa signature for rental cars from now on.
Wait there is more…
Do you use coupons when you book your rental to knock some % off? You might not be covered at all, says Amex. According to the Amex rep, unless you use American Express discount coupons your coverage is void!!! The reason – the contract requires you to pay the “entire” amount with your American Express card, by using a coupon you have used other means as well to pay for you rental! Sorry you are out of luck! Master Card and Visa signature reps said coupons are fine as long as I charge the rest of the entire amount to the card. The Visa Signature rep suggested I call back after I book the rental to make sure the coupon I used didn’t change the agreement. She said she will look up the coupon and confirm.
So am I stuck with the ridiculously overpriced rental insurance?
No. You can still decline them, but not before you make 2 phone calls, do some homework 
and completely understand your risk.
Home work:
- Decide what size car you want? (Some cars are excluded from your personal auto policy AND your credit card policy, like an exotic car or certain vans or an expensive car)
- Decide what type of car you want? (If you have an old Honda civic at home and you just carry liability for that car, you might have to get more insurance to rent that Porsche)
- How long are you planning to rent? (Rental period exceeding certain number of days are not covered either by your insurance or credit cards, example Visa covers only for 15 days within your country)
- Decide where you are going to rent the car and what coupon you will be using.
- Are you mixing business and pleasure? (Your personal auto policy may cover you only if the trip is a pleasure trip and not a business trip. If you are going on a business trip I hope you have your business’ insurance covering you.)
1st Phone call : To your Auto insurance company/agent
- Will my liability and collision policy cover the rental car as well?
- Will I be covered in case of theft or other non-collision damage?
- What is the limit and my deductible?
- Are there any exceptions when I won’t be covered? (like some policies won’t pick up the bill if you drove off road)
- Is there a limit on how long I can rent the car?
- Does the policy cover loss of use, diminution value and other fees charged by the rental company?
- If they require documentation, who is responsible for obtaining the documentation?
- How long do I have to report the accident and file a claim?
- What is the claims phone number and what paperwork needs to be submitted?
- (If you are planning to rent outside the US) what are the specific conditions and exclusions for the country (in which you are renting)?
- What paperwork should I get from the other party involved in the accident or from the rental agency when I return the car?
2nd Phone call : To your credit card company
- Do I have rental car coverage?
- Is the coverage primary or secondary?
- What are exceptions to the coverage? (example: theft or vandalism)
- How long can I rent a car?
- What is the maximum amount of coverage?
- Do you cover loss of use, diminution value and other fees covered by the rental company’s insurance?
- What documentation is required and who is responsible for obtaining them?
- Are there any vehicle exclusions?
- I have used [whatever] coupon. Will this affect my coverage?
- What is the claims processing phone number? What paperwork needs to be submitted?
- What paperwork should I get from the other party involved in the accident or from the rental agency when I return the car?
[Note: I have made a downloadable printer friendly version of the home work and the questions for insurance agent and credit card companies for your convenience. Click here to download the pdf.]
Know your risk
Once you have all the information (believe me, it won’t take more than 15 minutes to collect everything and that 15 minutes could save you $1500 or more on “headache” fees ) consider your coverage and risk. If you don’t want to deal with the fees and you hate the possibility that you might have to pay some of these fees, then by all means take the rental insurance. Some people rent only once or twice a year and they would much rather pay a high fees for their peace of mind on their annual family vacation. That’s fine. But if you are a frequent renter or you are someone who buys the insurance from the rental counter because of the pressure tactics from the rental representatives, please do take a fresh look at all the coverage you have. There is no point in taking duplicate coverage and throwing money away. At $15-$40, a day that’s a lot of money to throw away. Once you have made the decision, stick with it, whatever the rental representative might say.
What if I don’t have my own car so have no personal auto policy?
If you are a frequent renter or even a frequent borrower, but don’t own a car, shop around for a Unlimited Non Owner Coverage (UNOC). This will provide you with basic coverage for $100-$300 a year.
Some other options:
There are some other options to limit your liability to the rental car company in case your auto policy and credit card policy fall through.
Check with your employer/school : Some employers have their own pre-negotiated contract rate which you might be able to use for personal use as well (check this with your HR). This rate might be a little higher than the normal rate, but could include CDW and liability, which means you are off the hook for all the charges. You will have to show your ID at the rental counter if you book using your company or government rate.
If you have AARP membership, use that to limit the liability : If you use the AARP rates and decline the collision damage waiver, it caps your maximum responsibility limit to $5000 if you damage the car. They also provide a modest discount off the rental rates too.
Rent from someone who does provide the fleet utilization log : If you are debating between 2 rental companies, you could give them a call to ask how they proceed in case of an accident and you had declined their insurance. If one of them says they will provide the required documentation whereas the other won’t, lower your risk and stick with the company that does cooperate.
Who wants to worry about insurance when you are on vacation? Stay informed and have a fabulous vacation!
Links that might be useful :
American Express Rental insurance
Visa Signature Rental Collision Damage Waiver
Discover Rental Insurance Plan
Disclaimer : The above article is based on my personal policy and the types of credit cards I have. It is not a substitute for verifying details on your own auto insurance policy and credit card policy, as every policy and credit card offer different levels of protection.
{ 10 comments… read them below or add one }
Very, very helpful blog. I’ve been researching rental car insurance facts and I’m glad I came across this.
Is that an Alberta license plate I see in the picture?
Great tips!! =)
Very informative article on a most confusing topic.
I’ve had 2 accidents while driving rental cars; one that was my (ex-spouse’s) fault and one that was charged to the other driver. I waived all insurance coverage and charged the rental fees to my American Express. In both cases I never paid a dime and American Express worked directly with my insurance company and the rental agency to handle the claims.
If you have decent auto coverage (http://bit.ly/9ONvXR ) and you use one of the credit cards mentioned in this article you’ll be fine.
@Betty Thanks for letting us know about your experience. I have denied coverage but didn’t claim the insurance, so don’t have any personal experience. As I mentioned in the article, it is from calling all the credit card companies and some insurance companies. American Express did say that certain coupons voids the insurance contract, so it is always good to ask about these before having to use them instead of doing it after an accident I think. Thanks for visiting! Loving your book so far, hope you will visit regularly
Now I’m really confused. You make it sound like liability and collision damage are almost always covered by your regular insurance. Are you absolutely sure about that? Because when I called my insurance company they told me that neither liability or collision would be covered for me on a rental car.
Of course, I am in Canada and the province I am from has a policy to primarily insure the vehicle not the driver. So as soon as I am not driving my vehicle, the insurance on the vehicle I am driving takes over. Is it not like this in any of the American states?
Saving Mentor,
In the US if you do take a full coverage, it does insure the driver AND the vehicle, if it is personal. It won’t cover business vehicles. So generally in the US your personal insurance does extend to rental car. Your policy will treat a rental like your primary vehicle while you’re in possession of it. With that said, most people with older cars take just the liability (or whatever the state requirement is) and limit it to the minimum, in that case it is essential to check if they need additional rider to cover rental.
As I said it is never a good idea to decline rental insurance without talking to your insurance agent and the credit card company. Your first step should be to find out if the coverage you have on your personal vehicle will provide protection for you in a rental car. But to your question, yes in the US generally your policy follows you and the credit card will (most likely) pick up your deductible from primary insurance and other incidental fees.
I still don’t think the true story is out…. Check state laws too.
Regardless of personal insurance or card coverage: YOU are contractually liable to the rental car company for the car, lost revenue and everything else their lawyers can dream up. Most anecdotal information is that they attempt to recover ALL costs from you initially. In other words, the total costs would be immediately billed to your credit card or you will receive a demand letter for any outstanding charges and it would be left to you to settle with third parties including your personal auto policy carrier. Yes, other insurance may pay eventually, less deductibles…. In the meantime, you could be on the hook for months for the whole amount until you jump through all the reimbursement hoops. Not peddling CDW but is it worth the hassle otherwise?
@David
Did you read my response? I’ve done this twice and while one of the rental car companies did place a charge on my AMEX for the estimated damages, American Express held the amount in suspense and I never had to pay it. I can’t speak for any other credit card’s supplemental rental car insurance but I know that AMEX handles everything. Instead of paying for something you might not need, pick up the phone and find out exactly what’s covered by your credit card (and consider switching to a better card if you don’t like the answers.)
By the way, I don’t work for or get compensated in any way by American Express.
Yes, I have Visa Gold and they say basically the same thing but stumble a little when you ask about required documentation ( will they require usage logs in order to pay loss rental damages, etc.). “that shouldn’t be a problem”. My personal auto also covers me. My post really just reminds everyone, that ultimately, the person who signs the contract is LEGALLY on the hook for the car and a myriad of extra charges if the car is damaged.
I think this is something that screams for consumer protection i.e. they should be required to post the responsibilities and the insurance rates on a sign at the counter. That way when you are looking at a contract, you know what the additional charges are going to be per day.
Last time we rented, it was in a town near the Mexican border (use your imagination on what could happen) we went through Priceline.com and rented a Hertz car. Big, big mistake. My wife set it up initially with Priceline.com @12.00 per day. By the time I got to the counter at the airport, the rate was double with the additional extra charges tacked on which weren’t itemized anywhere but were already billed. Then I was told at least 4 times by the Hertz agent when queried directly by me that the 27.99 @ day rate included the CDW. When you rent @ 12.00 a day, 27.99 doesn’t seem too far out of the ballpark with the CDW included. On check in, we were then given a different receipt by a different agent which showed that in fact, the 27.99 @ day was for the CDW only and didn’t include the car rental! Yes, the agent lied big time-but they have a financial incentive to do so and I only rent a couple of times a year. So I was the dumb consumer on this one. But not anymore. If you go through a website to rent a car other then the rental company itself, you just set it up so they can blame the other company involved for any problems you have. Like I said, never going to use either of these outfits again.
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