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Rental Cars: Are You Covered?

If you've ever stood anxiously at the car rental counter, wondering whether or not to buy insurance, you're not alone.

A study released this spring by the Progressive auto insurance company found that 25 percent of renters wind up buying insurance purely out of confusion. Conversely, 65 percent of consumers never buy insurance at all. Both groups, says The Early Show's financial advisor, Ray Martin, may be making uninformed decisions. In fact, the majority of those surveyed by Progressive admitted to not understanding optional waivers.

It's important to know whether or not you need to buy rental insurance. Insurance is expensive - buying every optional waiver can double the price of your car rental—so those who don't need it shouldn't waste money purchasing it. On the other hand, uninsured consumers run the risk of finding themselves losing even more money in the event of an accident.

Many drivers assume that because they already have regular car insurance, they don't need to purchase additional protection. This, Martin says, is an erroneous supposition.

He also advises: "If you are renting a car for an extended time...and you don't have auto insurance, check with an auto insurance agency about the possibility of getting a short-term auto insurance policy. The cost of this may be less than the total rental car insurance add-ons over a several week period."

For those who don't wish to take the financial risk of driving an uninsured vehicle, Martin outlines the four most typical forms of available rental car coverage:

Loss Damage Waiver/Collision Damage: This covers all costs you might incur if the rental car is damaged or stolen. It also pays "loss of use" fees to the rental company - the money lost by the company when the car is being fixed and thus can't be rented. This is not actually insurance, instead it is a legal provision saying that the rental company agrees to waive any financial claims against you for damage. It typically costs between $8 and $15 a day.

Many people who already have comprehensive collision insurance on their vehicles automatically pass on this option. But according to Martin, this is the waiver that people should examine most closely. Here's why:

  • Only eight states offer insurance policies that cover "loss of use" charges. If you are in an accident and the rental car winds up in the shop for a week or more, you could end up owing the rental company a lot of money in lost rental fees. The state auto policies that DO cover "loss of use" include: Alaska, Connecticut, Louisiana, Minnesota, North Dakota, New York, Rhode Island and Texas.
  • If you are renting a car that is more expensive than the car you currently own and/or you have dropped comprehensive collision coverage from your policy, the waiver may be for you.
  • If you file a claim on your personal auto insurance policy for an accident you cause with a rented car (which may be more likely as the car and location in which you are driving is unfamiliar to you), your auto insurance provider will categorize you as a higher risk driver, resulting in an increase in your auto insurance premiums. If you are concerned about this, it may be worthwhile to buy the collision damage waiver.
  • Finally, your collision insurance may not cover accidents that take place in another country. Consider buying the waiver if driving your rental car into Canada or Mexico.

    Personal Effects Coverage: If your personal belongings in the car are damaged or stolen, this insurance will cover your losses. It costs about $1.25 a day and is the other optional add-on Martin thinks renters should consider.

    If you have homeowner's or renter's insurance, you probably will be covered by your personal insurance and don't need to buy this. On other hand, in order for your insurance to kick in, you have to meet your deductible first. Many homeowners have raised their deductibles in recent years to $1,000 or $2,500, to offset rising insurance rates. When traveling with digital cameras, laptops, DVD players and other valuable personal property, the costs to replace damaged or stolen items can really add up - but still may not reach your deductible.

    Supplemental Liability Protection: This protects you and other authorized drivers if you injure or kill someone or damage their property. It typically provides up to $1 million in liability protection and will cost you $7 to $9 a day.

    "Rental car companies are required to automatically provide some minimum liability insurance required by most states," Martin explains. "But generally this is not enough protection for a serious accident."

    In other words, if you are in a serious accident you could be sued for much more than the amount covered by the minimum liability requirements.

    However, Martin points out, many drivers carry only the minimum liability requirements on their personal auto policies. So these drivers take the same risk renting a car (that includes minimum liability protection) as they do driving their own car every day.

    If you are concerned about not having enough liability protection, Martin says, you should beef up your personal car or home liability insurance policies - don't buy it from the car rental company.

    Personal Accident Insurance: This is life and medical insurance for everyone in the rental car. If you have health insurance, you probably don't need this protection; your health insurance will cover any hospital bills related to an accident.

    "Unfortunately, some rental car companies bundle this protection with personal effects coverage, so you cannot decline this and accept the personal effects coverage," Martin says. This coverage typically costs about $3 per day.

    In addition to the four most typical forms of coverage, Martin notes that credit card companies are starting to offer insurance to those who use their cards to rent cars. Generally, credit cards cover physical damage to rental cars. Benefits rarely, however, include liability, medical expenses or loss of personal property.

    All cards are different, so Martin advises consumers to call their credit companies to inquire about specifics, and to then have their policies sent in writing. Coverage limits, for example, differ from card to card, and not all cards cover loss-of-use charges.

    Also, all cards have restrictions. Again, these differ from card to card. Many credit cards won't insure luxury cars or SUVs. Others will only insure a car for a minimum number of consecutive days.

    Martin stresses that there is no hard and fast rule on car rental insurance/waivers. In general, he suggests taking a second look at both the collision damage waiver and the personal effects coverage.

    Martin's best advice for anyone renting a car is to figure out if you need or want the insurance before you arrive at the rental car counter, then call your insurance company and your credit card company to find out for sure what is and isn't covered. Then, Martin says, you will have all of the facts in front of you and will know what risks you are taking by not buying the optional insurance.

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