By Richard A. McGrath, CIC, LIA
A common question asked by drivers who are traveling on vacation is whether they need to purchase any additional insurance for their rental car. Before you finalize your rental plans, do a little research on your options to avoid wasting money on coverage you may already have through your existing auto policy.
If you’re planning on renting a vehicle, there are two important phone calls you should make before deciding to purchase coverage from the rental car company: one to your local independent insurance agent and one to your credit card company.
Check with Your Independent Agent
First, find out how much protection you have on your current auto policy and ask what it covers. Are you covered for damage, theft, and loss of use? Do you have liability coverage for property damage or injury to others? If any personal items are stolen or damaged while in the vehicle, are you covered?
Typically, whatever coverage and deductibles you have on your personal auto policy will also apply to the rental car, so long as the car isn’t being used for business purposes. However, if you recently dropped either the comprehensive or collision coverage on your auto policy in order to reduce costs, then you won’t have coverage in the event the rental car is stolen or damaged in an accident.
As for liability coverage, your primary policy may not be enough to cover the costs of damages for a catastrophic event. Talk with your independent agent about a personal umbrella policy, especially if you are a high net worth individual. An umbrella policy can provide protection against claims that may not be covered by your auto liability. To start, a $1 million umbrella costs about $150 to $300 a year and can be increased in increments up to $5 million.
Check to see if your insurance company will pay for administrative fees, loss of use or towing charges. If not, some companies may provide a rider you can add onto your insurance policy to cover these costs.
Check with Your Credit Card Company
If your auto insurance policy doesn’t offer protection when you’re driving a rental car, check to see if your credit card company does. Most credit card companies provide some level of coverage for rental cars, provided that you use the card to pay for the rental.
Keep in mind that coverage will vary depending on the company or bank that issues the card. Call the toll-free number on the back of the card you plan on using and ask them to send you the terms and conditions of the coverage being offered in writing.
Many credit card companies offer limited coverage for collision, damage, and theft, and strictly exclude personal liability and personal effects. Usually, the coverage offered through your credit card company is secondary to your personal auto policy or the coverage provided by the rental car company, meaning it will only pay out a claim after the limits on your primary auto policy have been exhausted.
Additionally, check to see if your health insurance provides coverage for injuries from an auto accident, as credit card companies tend not to offer coverage for personal injury.
Check with the Rental Car Company
Since coverage purchased through rental car companies varies widely, you should review the contract with your independent agent to make sure you understand what it is you are purchasing. You can choose from the following over-the-counter products:
- Loss Damage Waiver (LDW): Also referred to as a collision damage waiver, an LDW is not an insurance product. Rather, it is designed to relieve a car renter’s financial responsibility in the event the vehicle is damaged or stolen. Most waivers also provide coverage for loss of use, towing, and administration fees. The comprehensive or collision sections of your auto policy will cover these costs.
- Liability Insurance: By law, rental car companies must provide the state-required amount of liability insurance. In Massachusetts, the minimum is $20,000 per person and $40,000 per accident. This amount will vary by state, but is generally low and doesn’t provide much protection. The liability section in your auto policy will cover these costs, and an umbrella policy will provide you with additional coverage.
- Personal Accident Insurance: This coverage provides protection for medical bills for injuries to the driver and/or passengers involved in an accident. Either your health insurance or the personal injury protection section of your auto policy will provide coverage for this.
- Personal Effects Coverage: This coverage will protect against theft of your personal items left in the rental car.Typically, your homeowners or renters insurance policies include coverage for off-premises theft.
Before you rent a vehicle, request a copy of the auto rental agreement and review your coverage options carefully. If you already have a personal auto policy, check with your independent agent first to see if that coverage also applies to a rental car. If you don’t have your own car insurance, check with your credit card company for their coverage options. Never assume that you have to purchase coverage that’s being pushed by the rental car company unless that is your only option.
Remember, a little research into your rental car insurance options beforehand can go a long way and end up saving you extra money that can be put towards your vacation.
Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass. He can be reached at firstname.lastname@example.org.
This article is written for informational purposes only and should not be construed as providing legal advice.