A fresh look at rental car insurance

Herb Weisbaum • Profile • E-mail

If you’ve ever rented a car, you know the pitch. “Would you like the collision damage waiver to protect you in case of an accident?” the sales agent asks.

My insurance agent calls it “hassle insurance” because he knows what a hassle it can be when a rental car is damaged or stolen — even if it’s not your fault.

The truth is, CDW, which can be as much as $20 a day in some states, is not insurance. It’s an agreement between you and the rental car company that if the car is damaged or stolen you won’t be held liable.

For as long as I can remember consumer and travel experts have advised us not to buy the CDW. They say it’s too expensive and unnecessary.

Consumer Reports also advises its readers to “resist the pitch,” because their personal insurance policy probably covers damage to a rental car. The editors also recommend paying with a premium credit card that provides accident coverage.

These consumer groups are all well intentioned. But I believe they are stuck in park while the rental car industry has changed dramatically. It’s time to question this advice and take a fresh look at the subject.

The new reality
“Sometimes it just makes sense to buy the CDW,” says Carolyn Gorman, president of the Insurance Information Institute. “Things certainly have changed and the old rules really need to be looked at again. People should know that if they turn down this extra coverage they could be sorry later.”

That’s because rental car companies hit you up for more than the cost of repairing the vehicle. Chances are the contract you sign (but probably don’t read) obligates you to pay for all the revenue lost while the damaged vehicle is out of service.

You may also be charged for “diminution of value,” the money the car company estimates it will lose (because of the accident) when it sells the vehicle.

Remember, the rental car company has your credit card number, so they can just add these charges to your bill.

Rental car tips * Most insurance policies do not cover rental cars in other countries. See if your insurance company sells a rider for this. If not, then the CDW is advisable. * For primary credit card protection, the vehicle must be rented in the cardholder’s name. * Carefully check damage before you drive off the rental car lot. Mark everything on the damage slip they give you. Check the car again when you return it. And ask for a signed slip that says you brought it back undamaged. You may have to go into the office, but a few extra minutes could save you hundreds of dollars.

“But,” you say, “I checked and my insurance company covers rental cars.” OK, let’s assume you file a claim. There’s still the deductible to deal with.

That’s not a problem if you put the rental on your credit card because most credit cards will pick up the deductible.

But if you do file, your premiums could go up for several years. No one wants that to happen. And in fact, your policy may not cover all the charges billed by the rental car company.

So why not skip your own insurance policy and just file a claim with your credit card company?

Here’s the rub there. Most credit card company’s collision damage waivers are secondary coverage. That means you must file a claim with your insurance company before they’ll pay a dime.

Stuck again, unless you have one of the few cards that offer primary coverage – they’ll pay the rental car company without the need to file a claim with your own insurance.

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