Why You Need This Type of Insurance

Last Updated Oct 25, 2011 2:36 PM EDT

I often get questions from readers and sometimes I'll answer them here. If you have questions you'd like to ask, please email me by clicking on the "Contact Ray Martin" link to the left.

Question:
Hello Mr. Martin,

I read your column on "Why You Should Buy Rental Car Insurance" and wanted to ask you a question.

I'm a trainer and last week I traveled in a rented a car to deliver training on a military base. The base was performing a drill, and I volunteered to have the troops inspect my car. They found a small amount of marijuana in the car and I was arrested, charged, and released on bail.

I had no knowledge that the stuff was there until the inspection team found it. Initial legal estimates are around $5,000 to square the charge, and based on the rental contract language they tell me it's doubtful that the rental car company will take any responsibility for renting a car to me with drugs in it.

Have you ever heard of this situation?

Anonymous

Ray Answers:
Dear Mr. A,

Unfortunately you suffered for a classic case of being in the wrong place at the wrong time!

When you search the internet, you'll find that there are countless drug busts in rental cars. But your situation raises this question: what insurance can you get that will protect you if you get arrested because the rental car company didn't REMOVE drugs from the car you rented?

Apparently this risk is real. A check with the local police found that they get called frequently to come and pick up various drugs when rental car companies are cleaning cars that have been returned.

If you check the Loss Damage Waiver clauses in many car insurance policies you'll discover that they don't really cover anything like this, just damage to the vehicle and loss of possessions. I suppose that you could make an argument that the loss of your freedom and cash to offset fines and legal fees is the loss of a possession, but that would likely be declined.

This situation is exactly the reason why I strongly urge folks to review their insruance and to buy Excess Liability insurance.

This situation is exactly the reason why I strongly urge folks to buy Excess Liability insurance. Underlying policies which include an automobile and homeowners insurance do not cover certain types of liability claims, which can include defamation of character, libel, slander and false arrest. But Excess Liability insurance should cover the legal defense costs of challenging the charges and clearing your reputation. This insurance supplements the existing liability protection of homeowners and auto insurance and is typically referred to as umbrella liability insurance. This provides protection in excess of the limits on the other policies, in amounts of $1 million to $2 million, for as little as $250 to $500 a year.

Another strategy is to never rent a car that dopers would drive!

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.