Rental car insurance – what to know before you travel

There are a lot of places you can travel to where you won’t need, or want, a car. Hello, New York City! However, for many domestic trips you’ll want to have a rental car to get around. Even if you’re not a traveler, you might find yourself needing to rent a car while yours is in for repairs or while you’re in the market for a new vehicle.

There’s a lot of uncertainty when you’re renting a car - many add-on costs that seem like they could be a scam. Paying for a second driver? A collision damage waiver (commonly called a CDW by rental car companies)? Is that covered with your personal auto insurance policy or your credit card? You likely already know what your auto policy covers for your own car, but do you know what’s covered when you rent?

Check your personal auto policy

Your personal auto policy will probably cover you when you're driving a rental. Check your policy or call your advisor to know for sure; it’s better to know before you go so you can adjust coverages with your carrier or the rental company. Note if you have a high deductible, or if you don’t have Comprehensive or Collision Coverage. In those cases, the cost of any damage to the rental car will come out of your pocket. You could also be on the hook for Loss of Use – that means that the rental car company could charge you for the income they’re losing while the car is out for repairs.

The rental car company can also seek payment for the lowered value of the rental vehicle after an accident. Think about it this way: a rental car company doesn’t keep their cars forever. When it’s time to sell their stock, they will get less money for a car that has been in an accident than a car with a clean record. They might make you pay them that difference.

Credit card coverage

It’s possible that you have a credit card that offers a type of collision damage coverage. If you use this credit card to rent a car, you will have that coverage regardless of what your personal auto insurance policy covers. This means you can decline the rental company’s collision damage waiver and save some money. It can be a hassle to deal with a credit card company for this but if your options are to pay the rental company or use your card’s free coverage, it could be worth it.

Using this coverage means that if your rental car is damaged or stolen, your credit card company will pay for it. This can come with a lot of restrictions, so it’s important to review your policy or even call your credit card company to learn more about their specific insurance coverages. Some important questions to ask include:

• What kind of coverage is provided?
• Which countries are included in coverage?
• What is the maximum number of days of coverage?
• Are there any restrictions on the type of vehicle?
• Are there conditions to the coverage, such as where and how I am driving?

Here’s where rental car insurance through a credit card gets a bit complicated. In order to use this coverage, you need to decline the collision damage waiver offered by the rental car company. The rental car company doesn’t necessarily know, or trust, your credit card coverage. This means you could be liable for the full amount of the rental car company’s deductible. To protect their investment, the rental company might put a hold on your credit card – and it could be as much as the car’s full value. This could be disastrous if you have a low credit limit or were planning to use that card exclusively for hotels and other purchases on your trip.

If you have an accident, the rental car company will charge your credit card for the value of the damage up to the amount of their deductible. You’ll need to work with your credit card company to be reimbursed but you should be able to get that money back. How easy it is and how long it takes will depend on the credit card company.

Also note! If you get collision damage waiver coverage from the rental car company, you’ll probably lose any coverage offered by your credit card company.

Rental car company collision damage waiver

The simplest solution is to buy a collision damage waiver from the rental car company. Technically, a collision damage waiver is not rental car insurance – it’s a waiver. When you buy a collision damage waiver, you’re paying for the rental car company to waive its right to collect a high deductible from you in the event the car is damaged.

Often, the collision damage waiver does not cover certain items like the windshield and tires, and the collision damage waiver may have a deductible of as much as $1,500, depending on the vehicle. Zero deductible coverage is rare and when you find it, it’s often expensive. To save money, you may be able to purchase a collision damage waiver along with theft/loss insurance as a single package at a reduced price. Talk to your rental car company about their rental car insurance options and read their policy to make sure that it includes the coverages you need.