You’re probably already shaking your head ‘no.’ You’re on vacation. You’re already spending too much money. Every travel article tells you that the rental car insurance is an unnecessary add-on, especially since you already have full personal auto insurance coverage and a MasterCard with some kind of extra insurance coverage.
You don’t need the rental car company’s insurance – do you?
As ever, the travel companies and websites might know the travel business very well, but they don’t know the insurance industry, and they’re misleading thousands of people. Even if you have “rental car insurance” included in your personal auto policy, you should go for the rental car company’s offered insurance addition when you sign the contract, and here’s why:
Your Personal Insurance Won’t Cover All the Damages
“But I have full coverage!” You may very well have full coverage, and if your own vehicle was damaged, you’d have no problem at all. But rental cars are a different animal.
Your insurance covers the cash value. The rental company will demand the “full value.” Which is to say, if someone sideswipes your rented Honda, your insurance company will determine how much the vehicle could have been sold for, and compensate you for that amount. The rental company will demand the ‘full value’ of the vehicle – the cost they claim it will take them to replace it.
What’s more, your personal auto insurance may not pay for damages on a rental car at all, if you rented it for a vacation. The personal policy’s rental car coverage is usually there to protect you when you rent a car when your own is disabled – in almost every case, it will not protect you if you rented the car for pleasure.
There is often a several thousand dollar disparity between the cash value and the “full value.” Your insurance won’t cover it, so it will come out of your pocket.
Even if you haven’t totaled the car, you’re in for the ‘diminished value’ charge. The damage will have decreased the value of the car, and most personal auto policies do not cover decreased value costs. Diminished value can run you anywhere from $3,000-$10,000 and higher, depending on the priciness of the vehicle you rented.
Finally, your personal auto insurance has the right to inspect and appraise the damaged vehicle before it’s repaired – and your car rental agreement says that the rental company has the right to repair the vehicle immediately. If the car rental company wants to get the car back into action quickly, your personal insurance policy may give you no coverage at all for the damages.
Car rental companies will also want to charge you for loss of income, essentially charging you for the time the vehicle was being repaired instead of being rented out to another user. Personal auto insurance policies offering ‘full coverage’ generally have a cap on loss of income, if they cover it at all. Even if no one is scheduled to use the car, the car rental company can still charge you for loss of use.
These are just a few of the holes in your ‘full coverage.’ Credit card agreements are often even worse, with gaping holes if you violate the terms of your rental agreement, such as allowing an unauthorized driver to drive the vehicle. Credit card insurance coverage is never going to cover all of your expenses if you have an accident in a rental car – don’t rely on it.
Your Credit Card May Be Charged – Immediately – For Damages
Have you ever actually read the fine print on those rental agreements? More than a few require immediate reimbursement for damages, and if you’re unwilling to pay them, they can use the credit card they have on file from the rental, racking up thousands of dollars of credit card debt that you will then be stuck paying off.
These fees can add up to thousands of dollars for fairly minor damages, such as a broken side mirror. Would you rather pay the $12.50 a day for the rental insurance on your credit card right now, or wind up with a charge for $4,000 for fees your personal auto policy won’t cover in a week or two?
What’s the Solution?
Well, obviously, get the insurance coverage. But here’s an additional sweetener for why it’s a great idea. The car rental’s damage policy almost always offers more coverage than your personal policy (though you should double-check the fine print – there are unscrupulous car rental companies out there).
There’s a big upside to getting the car rental company’s insurance: for most major companies, if there is any damage to the vehicle, you won’t have to sit around arguing with a bored customer service representative about who was at fault and whether your personal auto policy covers the damages.
Instead, you can simply drop off the vehicle – with one side scraped to hell and the windshield cracked – hand over the keys, and march off to catch your flight.
Why so? A whopping 85% of car renters don’t purchase the car rental insurance, even though approximately 20-30% of rental vehicles are returned with some kind of damage. The car rental company can afford to take the loss on the vehicle you return damaged, because right behind you is another guy – who didn’t buy the rental insurance – and he’s about to get charged a few thousand dollars in loss damage waivers, indirect losses, administrative expenses, and much more.