So, you're renting a car. You fill out the paperwork — and then the car rental agent asks if you want to purchase their insurance. Maybe they even give you a bit of a hard sell. What do you do? Do you just sign on the dotted line? Do you wave it off, saying you already have rental car insurance? Do you even know if you already have insurance? Figuring out the answers to these questions before you sign the papers will save you hassles and wasted money in the long run.
At the rental counter reaching for the key is not the time to start wondering what's actually in your auto insurance policy. Before you rent a car, call your insurance agent or take a look at your own policy. Determine whether you're covered for damage and loss of use of the rental vehicle. What about injury to others in the rental car? What happens if something is stolen from the car while you rent it? Know all these answers before you even walk in the door — because if the answer to any one of them is no and you refuse the insurance, you could find yourself in trouble.
The document the rental car company wants you to sign is called a collision damage waiver. When you buy it, the rental company waives its right to charge you for any damage to your rental car. Smash it to bits? Don't worry. Just turn over your keys and walk away. Yes, there are a few exceptions — you might have to pay for tire damage, for instance. But if peace of mind is your priority when renting, that collision damage waiver might be the only way to get it.
If you don't buy that collision damage waiver, your car rental company is going to charge you for fixing the damage (minus whatever your own insurance might pay, of course). But that's not all. They can also charge you for loss of use — that means that if the rental car is unavailable for rent for, say, four weeks, you have to pay for four weeks of rental at the full rate. They may also charge you for the loss of value suffered when they sell the car, too, since it has now been in an accident. Oh, and they'll also ask you for towing charges.
If you use your Visa or MasterCard to secure your car rental, it might provide collision coverage. Typically, credit card coverage includes repair of all physical damages (or replacement in the case of theft), all those loss-of-use charges, and towing. However, the credit card company is going to ask you to run the damages through your basic car insurance first. You may even have to pay the rental company up-front for damages, then file for reimbursement. It's a complicated process, and it's one that requires cooperation between your credit card issuer and the rental car company. This is the time to read that fine print.
Did you book your rental car through one of the major online travel agencies, such as Priceline or Expedia? If you did, you have the option of buying collision coverage for about $10/day. That's way lower than the $30/day or so that the rental car companies charge. However, it doesn't work as smoothly as the collision damage waiver. Agency-bought coverage is more like credit card coverage: you have to pay up-front and file for reimbursement in the event of any damages. The process for filing may be slightly simpler, though.
General liability insurance protects you from all those random accidents that harm other people. In the United States, car rental companies are required to include limited liability insurance in their rental agreements. Plus, you probably have some liability insurance already if you have a homeowners or renters insurance policy. However, if you're a high net worth individual who could be a target of lawsuits, you may want to purchase an umbrella liability insurance policy. That's not something you do at the car rental counter, though. Call your insurance broker to set that up.
Every kind of insurance is an attempt to isolate you from risk. But no insurance can do that completely. You might rent a car dozens of times, relying on your own insurance or on your credit card, and have no problems. Just be aware that you're taking on some risk when you do that. If you're not comfortable with any risk, go ahead and buy that collision damage waiver from the car rental company. Yes, it's overpriced, but you may consider the peace of mind worth the cost.