Don’t leave home not knowing

Find out if you’re covered for car rental insurance before leaving for your trip, not when you get to the rental counter.

Your flight was long, you’re tired and the kids are cranky. All you want to do is get to the hotel and sleep. You collect your bags and proceed to pick up your rental car, which you got for a great rate. The agent at the counter asks if you’d like to purchase insurance to cover the car. If you don’t you’ll be responsible for its entire value. She writes the amount on a piece of paper — $45,000.

If you decline the charges, you will have to initial in several places, confirming that you are declining the insurance. Many people simply pay it out of fear that they aren’t covered. That could be throwing good money away. So learn if you’re covered before leaving, not when you get to the counter.

TYPES OF INSURANCE

The first thing to do is to understand the different types of insurance. Collision damage waiver (CDW) covers any damage to the rental vehicle. Theft protection (TP) covers theft of the vehicle. Loss damage waiver (LDW) usually covers theft and damage to the vehicle. Liability insurance (LI) covers third-party bodily injury, death and property damage.

Let’s look at an example of an online quote by a large rental agency for a two-week rental in Portugal of a Volvo S60 automatic: the base rate, including LI but excluding CDW and TP insurance, including fees and taxes, pickup and return at the Lisbon airport, is $2,074.04. The cost of CDW is $44.97 a day and TP is $27.09 a day. After adding both for 14 days, the total cost, including fees and taxes, comes to $3,469.83. That’s an additional $1,395.79, or 67% more. And one other detail: the deductible on the CDW and TP insurance is $5,000. To bring the deductible down to $450 you could purchase super CDW insurance for an additional $28.75 a day. Include that and your total is $4,026.89, almost double what you thought it would be.

TWO ALTERNATIVES

There are two alternatives to paying the rental agency: your own automobile insurance policy or the coverage included on certain credit cards.

Let’s look at your policy. Most insurance companies offer the option of purchasing additional coverage for damage and liability when driving a car that you don’t own. It’s an endorsement called legal liability for damage to nonowned automobiles or rental vehicle insurance endorsement. It usually does not cost that much — about $30 annually — and can be an effective way to cover rental cars. There is a catch, however. This endorsement usually only covers rental cars in Canada and the US.

The other option is to use a credit card that includes car rental insurance coverage. Check the details — you need to read the cardholder agreement for your specific card. Take, for example, the TD Aeroplan Visa Infinite Card. The cardholder agreement has the following provisions (among others):

• only the cardholder may rent a vehicle and must decline the rental agency’s collision damage waiver;

• you must initiate and complete the entire rental transaction with the same TD credit card;

• the length of the rental cannot exceed 48 consecutive days;

• coverage is limited to loss/damage to, or theft of, a rental vehicle only up to the vehicle’s cash value (to a maximum of $65,000) plus loss-of-use charges, and there is no deductible; and

• claims must be reported within 48 hours of the damage/loss occurring by calling an 800 number in North America or a collect call in other countries (phone numbers are in the agreement).

So you could be covered for damage or loss on a rental car with no deductible simply by using the right card. But there are some catches. First, you are not covered for third-party liability, so you need to ensure you are covered separately for that. Remember, your personal auto insurance endorsement covers only Canada and the US, so if you’re heading overseas you need to ensure it is covered in the basic rental charge, or you need to purchase it. And if you are renting in Italy or Ireland it seems you are out of luck, as you have to purchase the rental company’s CDW.

Whatever you do, talk to your insurance or credit-card company before you leave on a trip. Tell them the specifics of your journey. Ask your insurance company to send you the actual endorsement. Talk to the insurance department of your credit-card company to confirm coverage and carry a copy of the cardholder agreement as confirmation of coverage and for the phone numbers to call if you need to.

One last tip: take a video of the car’s exterior and interior when you pick it up and when you return it. If the rental agency comes after you later for damages, you’ll have proof that there were none.

About the Author

David Trahair


David Trahair, CPA, CA, is a personal finance author and speaker (www.trahair.com). His latest book is The Procrastinator’s Guide to Retirement.

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