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Do You Need Insurance on a Rental Car?Submitted by Townsend Asset Management Corp. on August 30th, 2016
You are standing at the counter of the rental car company and reviewing the paperwork. The person behind the counter is busy and talking fast, indicating where you should be initialing and signing, while your brain is racing, trying to follow everything. You want to ask some questions, but there are some impatient people behind you who also need to rent a car. You are offered some insurance for the car, along with some dire warnings of what may happen if you don’t get the insurance. What should you do?
Unfortunately, what you should have done was to do your homework before you ever got to the rental car company. Do you really need the rental insurance? Maybe. Maybe not. Let’s take a look.
Your Auto Policy
First, review your auto policy – or simply call your agent. Your policy may have liability coverage for damage the rental car might cause others as well as collision coverage that handles damage to the rental car itself.
But, sometimes a rental company may also charge you for “loss of use,” if you get into an accident and the rental car is not available to be rented again for a while. They are potentially losing rental revenue and want you to pay.
Does your auto policy cover “loss of use” and what are the limits of the coverage?
Your Credit Card
Next, consider the credit card you will use with your car rental. Visa, MasterCard, American Express, etc. may provide benefits for physical damage, theft and “loss of use.” However, you need to confirm this with the company, as each company can have a different policy. In addition, with “loss of use,” the rental car company has to first agree to provide supporting documentation to the credit card company, and they sometimes just don’t do that.
Credit cards are secondary coverage, so your auto policy pays first (collision and comprehensive coverage) and the credit card picks up what’s left, subject to its own limits.
Also, not all cars qualify for the credit card coverage. Trucks or some particularly expensive cars may be excluded.
So, if your auto policy has good rental coverage and your credit card is also supplying supplemental coverage – is it now safe to decline the rental car coverage?
Probably, but here is one more thing to be aware of.
A rental car company might also have “administrative” or “diminished value” charges that apply if their car is wrecked. I would ask the rental car company if they do assess these charges and how much they might be. Finally, read the fine print of the rental agreement.
The protection you buy at the rental counter is not cheap and if you are adequately covered already, there may not be any reason to buy it.
Gerald A. Townsend, CPA/PFS/ABV, CFP®, CFA®, CMT is president of Townsend Asset Management Corp., a registered investment advisory firm. Email: Gerald@AssetMgr.com