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Secrets to unraveling car rental insurance

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You’ve probably been there before. You’re standing at the car rental counter, and the agent is trying to terrify you into purchasing an insurance package that totals more than the rental itself. After all, they’re not getting rich off that super $10 a-day deal that you snagged on-line.

Before you dismiss the pitch with a wave though, and initial eight times in the ‘DECLINE’ section of rental agreement, there are some things you probably should consider to ensure sure you’re adequately protected in the event of an accident. 

Here’s a quick guide to covering your bases when renting in the U.S. (If you are planning a trip to Europe, for example, that's a discussion for a later date, as policies outside the U.S. vary greatly.

Your Personal Auto Insurance Policy

If you decline the insurance provided by the rental company, then your personal auto insurance policy will often cover you when renting. Assuming you’ve confirmed this with your insurance broker or carrier, then the policy provided by the rental company often duplicates coverage you already have in place.

While there’s peace of mind that comes from being well protected, you may be wasting your money. On the other hand, you won’t have to deal with paying out a deductible, you won’t have to file a claim with your own company, and in some cases, you won’t be dinged for an accident which may drive up your insurance premium.

Your Credit Card May Not Be Enough

It’s fairly common today to have car rental insurance included with your credit card—especially with gold, platinum and business cards. It’s important to realize though that all coverage is not created equal. 

Renters who get into an accident often find out the hard way that most cards offer what is known as “secondary” coverage, which basically means that it will only pay out after your personal auto insurance policy has been exhausted (assuming you have such a policy). Some credit card policies also have a deductible.

Credit cards often have many conditions and stipulations on when they will pay out. Some for example will not cover SUV’s, vans or luxury cars. A car rental industry insider I spoke with told me that he’s seen credit card companies try to weasel out of claims for all sorts of reasons, so it’s very important to understand what you are covered for before you decide to rely solely on your credit card’s coverage.

Ask your credit card company for a copy of their rental insurance policy and familiarize yourself with what it actually covers. Even cards from the same company can vary widely in terms of coverage.

Premium Protection from American Express

American Express offers an interesting product in the form of Premium Car Rental Protection for existing Amex cardholders. The way it works is that once you opt-in for this coverage, your Amex card is automatically charged a flat $24.95 each time you rent ($17.95 for California residents). Unlike typical credit card coverage, this is primary coverage, which means that it kicks in before your personal auto insurance policy. There’s no deductible to pay, and coverage limits are much higher than a typical credit card policy. Most vehicles are covered, and you can be covered for up to 42 consecutive days for that single $24.95 fee.

This coverage can be a great idea if you don’t have a personal insurance policy and want to be better protected than what your standard credit card offers. Even if you do have a personal policy, it will provide an extra measure of protection and keep your insurance company out of the loop should something happen.

On any rental of more than two days, you’ll probably come out ahead financially vs. buying LDW from the rental company, since they will charge per day for insurance, while Amex’s Premium Protection is a single fee for the length of the rental.

What About Liability?

The discussion above has focused on coverage for damage on your rental vehicle so far, but what about the unfortunate situation where you damage someone else’s vehicle or property, or injure someone? That’s where liability comes into play. Rental companies are required by law (except in California) to provide state –mandated minimums for liability coverage in the basic rate. While the state minimums may cover most fender benders, in a serious accident you may be sued for more than you’re covered for.

Of course, the rental companies have an answer for this as well in the form of Supplemental Liability Coverage (SLI or SLP). For a per day fee, SLI will supplement the state mandated coverage provided by the rental company, typically up to $1 million. Your own personal auto coverage will be on top of what the rental company offers as standard, so SLI may not be necessary, but if you don’t have a personal auto policy, or you want the extra protection, then SLI may make sense for you.

Note that no credit cards offered in the U.S. include liability coverage.

The Easy (and Expensive) Way Out

While it's no secret that over-the-counter rental coverage is completely overpriced, it does serve a purpose. If you do have an accident, and you’ve opted for the rental company’s Loss/Collision Damage Waiver (LDW/CDW), then the car rental company will waive any repair costs if the rental car is damaged or stolen, provided the car is not driven recklessly or driven by an unauthorized driver.

There is certainly some peace of mind that comes with handing the keys back to the agent at the end of your rental, and not worrying about insurance deductibles, submitting claims to third parties, or getting stuck in the middle when the there’s a dispute.

Be Prepared

Standing at the rental counter on the receiving end of the hard sell on insurance is not the time to think about whether you have the coverage you need. Find out ahead of time what your personal auto insurance and/or credit card covers you for. All coverage is not created equal. Taking the insurance offered by the rental company will provide peace of mind and a minimum of hassle should something happen, but it will come at a price.

Jonathan Weinberg is the founder and CEO of AutoSlash.com, a website that automatically applies discounts, and re-books your rental if rates drop.