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Why you should buy rental car insurance


(MoneyWatch) As I wrote earlier this week, there are various ways of avoiding fees when renting a car. But what to do about rental car insurance?

The conventional wisdom among personal finance experts is never to spring for it. But let me tell you why paying a few extra bucks for rental car insurance may be one of the smartest things you can do.

If your current auto insurance includes collision and comprehensive coverage, then this should also cover the rental car within the limits of your coverage. And if you charge the cost of the rental car on a credit card, your credit card may include rental car loss-damage waivers as a cardholder benefit. This is where most consumer advocates stop and jump to the conclusion that rental car insurance is a waste of money.

That's shortsighted. In many states, auto insurance policies don't pay for a rental car company's "loss of use." This is the "cost" the rental car company incurs due to the loss of rental fees while their car is in the shop for repairs. If you want to cover this, then you need to buy the rental car insurance.

You also need to think about coverage for personal items. When traveling with digital cameras, laptops, iPads, or other gadgets, there is a greater chance something will get lost or stolen while traveling. The costs to replace these items can really add up. If you have homeowners or renters insurance, particularly the kind that includes replacement value coverage for personal property, then your current insurance should cover this.

The problem is that many folks have deductibles of $500 to $1000 or more to save money on their insurance costs. That means you have to pay for losses up to the amount of the deductible. Only a loss in excess of the deductible will be covered by your existing insurance. But there is no deductible to pay for losses claimed under the rental car insurance. Given the relatively low cost of personal effects coverage offered by rental car insurance, which averages about $2 a day, the additional insurance is worth it.

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 because you are driving an unfamiliar car in an unfamiliar location), your auto insurance company may mark you as a higher risk driver. The result? An increase in your auto insurance premiums. It may be better to pay for rental car insurance for the few days rather than risk years of higher auto insurance premiums.

Are you planning to drive the car out of the country? You need to check the insurance limits required by those countries, and you may find that your current insurance does not meet the limits.

So when you next rent a car, buy the insurance -- then you can drive it like you stole it and know you have the insurance to cover it.

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