Rental Car Insurance—Should You Buy It?

You're standing at the counter of a rental car agency in a strange city. The agent asks if you want to purchase insurance. Suddenly you're at a crucial decision point. If you agree, you pay a little more (or even a lot more) for your rental. If you refuse, you'll be required to check some scary boxes and initial some lines and drive away wondering what will happen if you get in an accident.

Should I buy insurance coverage when I rent a car?

This is a common question we receive from our clients. The answer is It depends.

• First, it depends on what type and amount of insurance you have on your personal vehicle(s).
• Second, it depends on the vehicle you own and drive.
• Third, it depends on whether you are willing to make claims on your personal insurance, paying deductibles and accepting possible rate increases if you have an accident in a rental car.

The Easy Answers

Here are three situations where we recommend you purchase additional insurance at the auto rental counter:

• If you don't own a personal vehicle and don't have personal auto insurance, you should buy coverage when you rent a car.
• If you don't have collision coverage on your personal vehicle and you don't want to buy Enterprise or Avis a brand-new car, you should purchase the add-on insurance coverage.
• If you're renting an exotic vehicle (such as a Ferrari, Lamborghini, or Bentley), the rental company will probably require you to buy special insurance coverage.

Apart from these specific situations, the answer is still It depends.

Types of Risks, Types of Coverage

There are four types of insurance typically offered when you rent a vehicle:

• Collision Damage Waiver (CDW)
• Supplemental Liability Protection (SLP)
• Personal Accident Insurance (PAI)
• Personal Effects Coverage (PEC)

Let's consider each of these and see how they relate to the coverage most people carry on their personal vehicles.

Collision Damage Waiver (CDW)

This insurance covers the cost to repair or replace the rental car if it is damaged or stolen. The vehicle must have been driven by an authorized driver named on the rental agreement, and the damage can't be the result of recklessness or negligence. Without this coverage, any damages will be your responsibility—or the responsibility of your insurance company, based on your personal auto policy. Coverage for rental cars is subject to the same limits in your personal policy. That means if you have a collision in a rental car worth $20,000, and your personal policy insures a vehicle worth $10,000, you'll have to pay the difference out of your own pocket. In addition, any claims are subject to your deductible, so if you cause $400 worth of damage and your deductible is $500, you'll be paying for those repairs yourself.

Supplemental Liability Protection (SLP)

Every state has a minimum level of liability protection every vehicle owner must carry, and rental companies are no exception to this requirement. The state minimums don't provide enough protection for anything more than a minor fender bender. Supplemental liability protection (SLP) generally provides $1 million in additional coverage to help fill the gap between the rental agency coverage and the actual damage caused in an accident. If your personal auto policy is a "state minimum" policy, opting for the SLP is probably in your best interest. Even if your liability coverage is higher—say, $100,000 per person and $300,000 per incident—you could find yourself paying out of pocket if you are involved in a serious accident.

Personal Accident Insurance (PAI)

If you or your passengers are injured in an accident in a rental car, personal accident insurance will pay medical and ambulance costs related to the accident. The policy may also include a death benefit for both driver and passengers if the worst should happen. Without this insurance, the cost of medical care related to an accident would be your responsibility (in cases where you are held responsible for the accident) or the responsibility of the other driver if they are at fault. If you have no medical coverage at all, or if you have a "high deductible" plan, you should consider opting for this low-cost coverage.

Personal Effects Coverage (PEC)

This add-on coverage helps replace your personal property if it is stolen from the rental car. The limits are generally $500 per person with a maximum benefit of $1,500. As with most types of insurance, prevention can help you avoid problems. Don't leave valuables in a rental car. If you purchase this policy, remember only $500/$1,500 of your stuff is covered. Items stolen from any vehicle are covered by your homeowners or renters policy, though any claims would be subject to your deductible.

What Happens If You Are in an Accident?

A good way to make the decision about rental car insurance is to consider what would happen if you were in an accident in the rental car with or without the coverage.

Scenario #1: ÊYou back into a light post, causing $500 worth of damage to a rental car's bumper.

If you purchased the collision damage waiver, the rental agency would repair the vehicle at its own cost. If you didn't purchase the collision damage waiver, you'll be responsible for paying the repairs out of pocket. You are also likely to be charged for Òloss of use,Ó which is the lost rental income while the vehicle is being repaired.

Scenario #2: You cause a significant accident, causing $5,000 in damage to the rental car, $5,000 to another driver's vehicle, and injuries that require $15,000 in medical care.

If you purchased the collision damage waiver and supplemental liability protection, the rental car company will pay for repairs to both vehicles and cover the cost of the other party's medical expenses. If you purchased personal accident insurance, the rental car company will also pay your medical bills. If you did not purchase the rental insurance, your personal insurance collision policy will cover damage to the rental car and your liability coverage will pay for the damage to the other vehicle and the other party's medical bills. You will be responsible for paying the deductible for the claim, and for covering your own medical costs. The rental car company will likely charge you for Òloss of use,Ó which most personal policies don't cover. Your insurance premiums will likely go up because of the accident.

Credit Card Coverage

While many credit cards don't provide any rental car coverage, some cards do provide a type of collision damage waiver protection for rentals. However, these cards do not provide any additional liability coverage, so damage to other vehicles and medical expenses would still have to be covered through a personal auto policy or rental agency liability coverage. If you're not sure whether your card provides rental car coverage, you can find out by reviewing the Òcard benefitsÓ section of your card issuer's website. Some cards limit coverage for vehicles rented less than 15 or 30 days, so pay particular attention to the terms before you rely on your credit card company for protection.

Making Your Decision

So you're standing at the counter of a rental car agency in a strange city. The agent asks if you want to purchase insurance. Should you buy insurance when you rent a car? Consider the following factors:

• What kind of vehicle are you renting? How does the value of the rental car compare to the value of your personal vehicle(s)?
• How much liability coverage do you have with your personal auto policy? Do you have collision and comprehensive coverage? If so, what are the limits and deductibles? Do you have an umbrella policy?
• How willing/able are you to pay to repair or replace a late-model rental car? Are you willing to pay for "loss of use" for a damaged rental vehicle?
• How will a claim against your personal insurance affect your rates?

If you're still not sure, it's time to sit down with your insurance agent to review your auto policy. Together, you and your agent can determine whether you have the right kind of coverage in the right amounts. That way, you'll know everything you need to know to make the right decision when you're at the rental counter.