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Rental Cars: Should you Pay for Extra Insurance?

March 17, 2010
Credit Card Basics, Credit Cards
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What Happens If I Wreck a Rental Car?

Disclaimer: The following comments are generalizations, and are not meant to be a substitute for verifying details of your auto insurance policy and credit card rental car insurance policy. Every policy and credit card offers different levels of liability protection.

For an updated breakdown of terms, and which credit cards provide the best protection, check out our more recent post on rental car insurance credit cards.

What you owe:

  • Repair fees for your rental vehicle. In addition, the rental company will also charge you “loss of use”, “diminution of value”, and “administrative” fees.
  • Repair fees for damage you cause to other vehicles. In terms of damage to other vehicles, every rental car company has to make sure the car they rent you meets the state’s minimum level of liability insurance, but it is under $50,000 in most cases, so you are liable for anything above and beyond that. This is especially pertinent when it comes to medical bills.

What’s usually covered:

Remember that your primary source of coverage is almost always your auto insurance, and not your credit card. Generally speaking, if you buy auto insurance that extends beyond minimum liability insurance, it will extend to “leisure” automotive rentals. The only way to find out for sure is to call your insurance company. However, with this coverage comes your usual deductible of $0-$1,000 depending on your policy.

Most credit cards (major exceptions being Amex Delta card and Discover Student card) offer “secondary” coverage to your auto insurance. Diner’s Club is the only card that offers “primary” coverage, a big thing to consider if you rent cars with an abnormally high frequency.

The big difference is, secondary coverage requires you to file a claim with your auto insurance, and basically only reimburses you for the deductible you pay for your primary auto insurance. In addition, if your liability exceeds your primary auto insurance coverage, secondary coverage kicks in, often for another $50-100k. Also keep in mind that having to report a rental accident to your primary insurance company could potentially result in higher premiums.

In effect, this deductible reimbursement is usually the only benefit of using a credit card to rent a car.

» MORE: Rental Car Insurance: Which Credit Cards Have You Covered

Not Covered: Loss of Use Charges

Loss of use charges can really add up depending on the car’s damage severity. If it’s in the shop for a month, you’ve effectively just rented the car for a month out of pocket!

While everyone except Discover claims to cover these charges, Visa cards usually actually do, while MasterCard and American Express usually hang you out to dry. They do this by refusing to pay unless the rental company shows proof that their vehicle fleet is “fully utilized” during the repair process, which rental companies will then refuse to provide, leaving you stuck with the bill.

Even Amex’s premium $24.95 / use optional rental insurance does not protect you, according to a lot of web commentary.

Not Covered: Diminution of Value Charges

A “diminution of value” can be pretty substantial, because the resell value theoretically drops after you wreck the car, therefore you have to compensate the rental car company for this. However, this generally only applies to a more limited set of situations where the car is severely damaged, but not totaled.

Not Covered: Administrative Fee

Arbitrary, but in the ballpark of $200 dollars.

Should I pay for it or not?

Generally speaking, no. On my trip to Hertz in California this week, the fees add up to $21 per day, $15-25 is typical. My maximum liability out of pocket in a wreck is “loss of use” + “administrative fees”, which in a typical scenario can add up to $1000. $21 per day is only worth it if I have a 2.1% chance per day of wrecking the car. I’d venture to guess that even the worst daily drivers on the planet wrecks less than 7 times per year, which is what 2.1% equates to if you drive every day.