When Brian Novak rented a car in Anchorage, Alaska, a stray pebble smashed his vehicle’s windshield. It left him with a $400 repair bill. Too bad he declined the insurance for his rental car.
His story repeats itself every day on my consumer advocacy site and is about to become even more common. At the car rental counter, when asked if they want insurance for their rental car, many travelers say “no.” That’s usually because the optional collision damage waiver can double the cost of the vehicle. So they have to make a bet that they’ll drive safely and return the car in working order.
Sometimes they don’t.
Why do you need insurance for your rental car?
“Many people find rental car insurance confusing,” says Ernesto Suarez, CEO of InsureMyRentalCar.com. “They end up spending a fortune at car rental desks or find themselves with a huge deductible bill at the end of their trip after a small chip to their windscreen.”
Novak, the owner of a hospitality marketing company from Skokie, Ill., got lucky. The credit card with which he’d paid for his rental covered chipped windshields.
“It took a few months,” he says, “but my credit card covered all costs.”
Others aren’t as fortunate. Almost every day, consumers who had no insurance or whose cards didn’t cover the damage contact me. They’re on the hook for hundreds or thousands of dollars in damage. In rare cases, they may have to replace the entire vehicle, which can lead to financial ruin.
Damage claims are about to become an even bigger problem. That’s because car rental companies are testing new technology that scans rentals before they leave the lot and after they return, logging even the smallest damage. In one test Avis conducted with the technology at London’s Heathrow airport, it increased its number of damage claims by 22%.
“Monitoring vehicle damage is a really significant thing for car rental companies,” says car rental analyst Neil Abrams.
What kind of insurance covers your rental car?
So when travelers ask me: Do I need insurance for my rental car, I say “yes.” But what kind? That’s where it gets a little complicated.
You have several options:
The car rental company’s optional insurance
This coverage, offered at the time of your rental, will cover most — but not all — damage to your vehicle. It’s priced at a premium and can be extremely profitable to your car rental company. Rental agents are specially trained to sell it to you.
A standalone car rental insurance policy
Companies such as InsureMyRentalcar.com offer a range of collision damage waiver policies online that are less expensive and sometimes cover more than those offered by car rental companies.
Most traditional travel insurance policies provide some kind of car rental coverage. But there are limits on them, too. You have to check your policy before you rent, and remember to call your insurance company with any questions.
Your car insurance
Most car insurance covers your rental, with some significant restrictions. Your insurance may not be accepted outside your home country or cover damage to certain vehicle types.
Your credit card
Credit cards, especially those marketed to travelers, often have some type of car rental protection. “Some credit cards include car rental protection if you use the credit card to rent the car,” explains Justin Tysdal, the CEO Seven Corners, a travel insurance company. “Most travel insurance plans provide optional car rental coverage that protects the car if it is damaged due to collision, theft, vandalism, windstorm, fire, hail, flood or any cause not in your control and if the car is stolen while in your possession and not recovered.” But again, there are limits. Many of the protections are secondary insurance, meaning that you have to first file a claim with your auto insurance before getting the card coverage. It can be a bureaucratic headache.
“You definitely need insurance when renting a car,” says Miguel Suro, a personal finance expert who runs the site Rich Miser. “Where it gets complicated is when you start talking about what kind of insurance.”
Here’s what the expert recommend for car rental insurance
First, a fact: You won’t find a single expert who recommends not getting insurance for your rental car. That’s because those stories about car rental customers paying for a new vehicle are completely true. It’s also true that these bills led to extreme financial hardships. Car rental companies don’t mess around when it comes to vehicle damage.
Another fact: Damage claims have been, and continue to be, a source of profits for some car rental companies. Reputable car rental companies only charge you for the actual repair. But others broadside you with inflated bills and “loss of use” charges. Then they send a damaged vehicle back into service, where another renter could be charged for the same damage.
The case for the rental company’s optional insurance
It’s convenient. If you’ve forgotten about insurance, you can easily add it at the time of your car rental. But it’s also expensive. “Conventional wisdom is that the added insurance on a rental car is a rip-off in most cases,” says Jake McKenzie of Auto Accessories Garage.
Here are the pros and cons of the expert car insurance options
The case for a standalone car rental insurance policy
A standalone policy may offer a range of collision damage waiver policies that are cheaper and more comprehensive than those offered by car rental companies. They’re also easy to buy. “Our website has been designed to cut through the insurance mumbo jumbo, making it easy for customers to find the cover they need and buy the right plan at the right price,” says Suarez of InsureMyRentalcar.com.
The case for credit card insurance
A variety of credit cards include some level of rental car coverage, which might allow you to decline the insurance offered by the rental agency, says Sean Messier, an analyst for Credit Card Insider. “Rental insurance provided through your credit card usually lasts around 15 to 30 days, and it covers most basic types of vehicles while excluding things like trucks and exotic cars,” he says. However, as mentioned above, the car rental insurance is typically secondary, which will only cover what your personal insurance doesn’t. But secondary insurance typically becomes primary if you’re uninsured or if your current insurance doesn’t work where you’re traveling.
The case for your personal car insurance
Remember, most car insurance covers your rental, with some significant restrictions. For example, some policies may not cover a specialty vehicle or one rented outside the country. But Preston McKinney, a travel agent with Odyssey Travel, a San Antonio travel agency, says it’s worth checking with your insurance company. His State Farm insurance can offer an endorsement that offers full coverage. “I suggest before renting a car, that my clients check with their auto insurance carrier to see if they offer such an option,” he adds.
The case for travel insurance
When you buy a policy directly through a company like AIG Travel, Allianz Travel Insurance, Arch RoamRight, Generali Global Assistance, Travelex, or through a travel insurance site like Seven Corners or Squaremouth, you’re also getting the convenience of easy coverage with some other benefits, such as medical evacuation and trip interruption coverage. Pro tip: Buying the car rental company’s optional insurance might be overkill, since your travel insurance can offer comprehensive coverage. “Check your travel insurance to see if you’re already covered,” advises frequent traveler Nick Brennan, who runs a UK-based cell phone accessories site.
Which option is right for you? It depends on your level of insurance, your risk tolerance and your circumstances. Buying insurance when you’re already covered may be too much — but then again, not buying enough coverage could decimate your personal finances.
Something to think about before you rent your next car.