Anytime you travel, it's likely you'll be renting a car when you touch down at your vacation destination.
Even if you've rented a car before, you may know that feeling of uncertainty when the agent asks if you want to purchase a collision damage waiver (CDW). To many of us, it seems like a scam. Doesn't personal auto insurance also include rental car insurance? Doesn't my credit card company offer insurance coverage when I use their card?
To avoid that uncertain feeling, now is the time to prepare for your rental car encounter. Here are some tips on rental car insurance that can help protect your pocketbook:
Check Your Personal Auto Policy
Your personal auto policy will probably cover you when you're driving a rental, but check to be sure. Remember that your policy may have a high deductible, or you may not have comprehensive or collision coverage. In that case, the cost of any damage to the rental car will come out of your pocket. Also, any coverage on your personal auto policy will not provide for loss of rents.
"A rental car company can come after you for lost rent on the vehicle while it is indisposed as if it were rented 24/7/365," says Christopher Foreman, account executive with HUB International Northeast.
Foreman says the rental car company can also seek payment for diminution in value, another cost not covered by your personal auto policy. Diminution in value is based on the difference between what the rental car company could get for your rental car on the open market with no claims on its record, versus what it could get with your claim on its record.
"Being able to hand the keys to the rental agent and have them handle the incident is better than having to pay out of pocket," Foreman says.
Credit Card Coverage
Many credit card companies now offer their own type of collision damage coverage. By paying for your car rental with a credit card that offers this type of coverage, you can decline the rental car company's CDW. Relying on credit card coverage can be a hassle, but it could be worth it.
Basically, if your rental car is damaged or stolen, your credit card company will cover the cost. But be careful - restrictions apply and coverage may vary. If you plan to use this coverage, ask your credit card company what kind of coverage they provide, in which countries the coverage is applicable, the maximum number of days they will provide coverage and the types of vehicles they cover.
To use this coverage, you'll need to decline the CDW offered by the rental car company. At this point, you may now be liable for the full amount of the deductible (which can equal the cost of the car). Because of this, the rental car company may put a hold on your credit card for the rental car's full value! This can be bad news if you have a low credit limit and you plan to use the credit card for additional purchases during your trip.
If you have an accident, the rental car company will charge your credit card for the value of the damage up to the amount of the deductible. It's then up to you to seek reimbursement from the credit card company. Be warned that if you accept CDW coverage offered by the rental car company, you automatically forego any coverage provided by your credit card.
Rental Car Company CDW
The simplest solution is to buy a CDW from the rental car company. Technically, a CDW is not insurance - it's a waiver. The rental car company waives its right to collect a high deductible from you in the event the car is damaged.
Often, the CDW does not cover certain items like the windshield and tires, and the CDW may have a $1,000 or $1,500 deductible, depending on the vehicle. Zero deductible coverage may be available, but it could be pricey. You may be able to purchase CDW along with theft/loss insurance as a single package at a reduced price.
"I've been called by someone who rented a car, got in a minor accident on the way to the airport and decided it was more important to make his flight home than to deal with the police reports and the rental agency," says Ryan Molloy, account executive with HUB International New England. "He was later required to pay $3,800 for damage to the rental car and loss of use because he declined the CDW."
"My best advice to clients when renting cars in the U.S. or internationally is to consider the CDW a 'convenience fee,' says Molloy. "Though we tell our clients that their personal auto policy will pick up liability and property damage for the rental car, I always ask if spending the extra $15 per day for the CDW is worth the convenience of being able to 'walk away' from an accident when you're in a pinch for time."