Rental Cars: Should You Pay For Additional Insurance Or Just Let Your Credit Card Cover It?

On Monday March 15, 2010, Mike X wrote to us:

One of the credit card benefits we look for is rental car insurance, which generally covers the deductible when renting a car for up to 30 days at a time. You don’t seem to have placed any value on this feature, which may be great for someone like me who rents cars for a total of 60 days a year. How?

It’s a great question, so we decided to do some research on rental car insurance.

What happens if I wreck a rental car?

You will be charged the rental vehicle repair fees, as well as the repair fees for damage you cause to other vehicles. In terms of damage to other vehicles, all car rental companies must ensure that the car they rent from you meets the state’s minimum level of liability insurance. That is less than $ 50,000 in most cases, so you are responsible for any amount greater than that. This is especially relevant for medical bills.

Unfortunately, the fees don’t stop there. The rental company will also charge you “loss of use”, “diminished value” and “administrative” fees.

What is covered?

Your main source of coverage is almost always your auto insurance and not your credit card. Generally speaking, if you buy car insurance that extends beyond minimum liability insurance, it will extend to “leisure” car rentals. The only way to know for sure is to call your insurance company. However, with this coverage comes your usual deductible of $ 0 to $ 1,000 depending on your policy.

Most credit cards (the main exceptions being the Amex Delta card and the Discover Student card) offer “secondary” coverage to your auto insurance. Diner’s Club is the only card that offers “primary” coverage, which is important to consider if you rent cars with an abnormally high frequency.

The big difference is that secondary coverage requires you to file a claim with your auto insurance and basically only reimburses you for the deductible you pay for your primary auto insurance. Plus, if your liability exceeds your primary auto insurance coverage, secondary coverage kicks in, often for another $ 50-100k. Also keep in mind that having to report a rental accident to your primary insurance company could result in higher premiums.

Indeed, reimbursing the deductible is often the only benefit of using a credit card to rent a car.

Not covered: loss of use charges

Loss of use charges can add up depending on the severity of the car damage. If you’re in the shop for a month, you’ve effectively just rented the car for a month out of your pocket!

While everyone except Discover claims to cover these fees, Visa cards provide the best protection, while MasterCard and American Express have been known to make people dry. They do this by refusing to pay unless the rental company shows proof that their fleet of vehicles is fully used during the repair process, which the rental companies might refuse to provide, leaving you stuck with the bill.

Even Amex’s premium rental insurance of $ 24.95 / time doesn’t protect you, according to many reviews on the web.

Not covered: Decrease in value charges

A “decrease in value” can be quite substantial, because the resale value theoretically falls after you wreck the car, therefore you must compensate the car rental company for this. However, this generally only applies to a more limited set of situations where the car is severely damaged, but not totally.

Not covered: administrative fee

The car rental company may also charge you an arbitrary administrative fee, usually at the $ 200 ballpark.

So should I pay for it or not?

In general, no. On my trip to Hertz in California this week, the cost of the additional insurance amounted to $ 21 per day, normal is $ 15-25. My maximum out-of-pocket liability in an accident would be loss of use plus administrative fees, let’s say in a typical scenario this would be $ 1000. $ 21 per day is only worth it if I have a 2.1% probability per day of wreck. I would venture to assume that even the worst daily drivers crash less than 7 times a year.

Disclaimer: The above assessment is a generalization and is not intended as a substitute for contacting your auto insurance company and credit card company to verify accuracy. Each policy and credit card offers different levels of liability protection.

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