Rental car insurance: Choosing your coverage wisely

Whether you buy coverage from a rental agency or use your own car insurance, it's wise to make certain you have enough insurance to pay for costly repairs if you suffer an accident in a rental car.

Before renting, familiarize yourself with all your insurance options. If you already have car insurance, call your insurance agent and find out if you will have enough coverage under your existing policy. You could also call your credit card company: Many offer coverage when you charge the rental.

In either case, these two options may be cheaper than purchasing insurance at the rental counter.

Which insurance works best as rental car insurance?

• Your auto insurance

If you have car insurance, the type of coverage you bought, along with its deductibles, usually applies to rental cars as well.

Assuming you purchased collision coverage, it will cover damage you cause to any car that you're driving. However, many auto insurance policies say that your collision insurance is "excess" to any other coverage, meaning that any coverage you buy from the rental car company kicks in first. Don't forget that your own collision insurance requires you to pay a deductible before the insurance company picks up the tab.

Your comprehensive coverage will likely apply to any rental car you drive and cover fire, theft, vandalism or animal collisions. Again, your own comprehensive coverage is excess coverage and is subject to your deductible.

If you cause an accident, your liability insurance will pay for the damages you cause to someone else, plus any medical expenses that arise from your negligence. Your liability insurance will cover you up to the limits of your policy, and if you were driving a rental at the time of the accident, your personal auto liability insurance, like your comprehensive and collision, will likely be excess coverage.

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• Your credit card's insurance

Many credit card companies offer rental car insurance benefits for free if you charge the cost of the rental on your credit card. If it's not free, your credit card company may offer a cheaper deal than if you purchased it at the rental counter. However, the Insurance Information Institute (III) recommends that if you choose insurance offered by a credit card company, ask to have the details of your coverage sent to you in writing. Credit card insurance coverage varies greatly from company to company. Some credit card policies cover only damage to your rental car but not to other cars. Others do not offer personal liability coverage for bodily injury or death claims. Do your homework.

• Rental car company's insurance

Rental car companies sell various types of insurance and waivers that broaden your liability protection and relieve you of the responsibility of paying for a wrecked rental.

Loss damage waivers (LDW) and collision damage waivers (CDW) from the rental company essentially take the place of your own collision and comprehensive insurance, letting you off the hook if the rental is stolen or vandalized, or if you crash it. Some LDWs include the CDW, and some waivers require you to pay a deductible, just like your comprehensive and collision insurance. But be careful. According to III, your coverage may become void if the accident was caused because you were speeding, driving under the influence or some other reckless error on your part.

These waivers are not an insurance product because they're not underwritten or sold by an insurance company. It's the rental car company's version of comprehensive and collision insurance. If you already have comprehensive and collision insurance for your own car, don't duplicate coverage you already have. But if you've dropped your comprehensive and collision coverage or don't have auto insurance, it's worth the money. According to III, this coverage generally ranges from $9 to $19 per day.

There are also Additional Liability Insurance supplements. If you are worried that your own auto policy has low liability limits, you can purchase extra coverage for between $7 and $14 per day, according to III. It will often cover you for up to $1 million if you cause an accident, damage property or injure others. If you purchase this insurance from the rental car company, it becomes your primary liability insurance. Your own personal auto liability insurance is, again, relegated to excess-coverage status. However, III suggests that buying an umbrella policy may be much more cost-effective.

A rental car company may also offer to sell you accidental death and personal property insurance. For example, the Avis rental car company offers Personal Accident Insurance (PAI) that provides accidental death benefits and medical expense benefits to the driver and all passengers. Avis' PAI provides $175,000 in accidental death coverage, $2,500 in medical coverage for injuries due to an accident and $250 for ambulance expenses. (Limits in New York are different.)

Most rental car companies also offer "personal effects" coverage for your personal property that might get stolen out of the rental vehicle.

Should you buy rental car insurance?

Making sense (and cents) out of all the coverages you already have on your car insurance and the ones that are offered by the rental companies is not easy. Buying all of the insurance offered from a rental car company can double your rental costs. Buying none of it might put you in a bad financial spot if you have an accident. Here are some factors to keep in mind.

If you don't have collision and comprehensive insurance and you're renting a car, it's a good idea to purchase the LDW or CDW, whichever your rental company offers. You might want to buy the waiver that offers you the broadest protection in this situation. Rental companies have several levels of damage waivers.

You might decline the LDW altogether if you have collision and comprehensive coverage because you'd be paying for "double coverage." But remember that you still have to pay your deductible if the car is stolen or vandalized, or if you crash it.

If you don't have personal auto insurance, you should compare products offered by your credit card company, rental car company and a non-owners auto insurance offered by regular auto insurers.

Also, remember that most states require the rental companies to automatically provide at least the minimum required liability coverage at no charge to you. If you feel that you can get by with just the bare-bones policy, you won't spend a dime on liability insurance.

If you have your own liability insurance, it will generally kick in first in the event of an accident. There's no deductible for liability insurance.

When purchasing coverage at the rental counter, keep in mind that their offerings of accidental death and personal property insurance give you needless "double coverage" — if you already have health, homeowners or renters and life insurance. Typically, your health insurance (or auto insurance if you have MedPay) will kick in for your medical costs, regardless of what car you're driving. Your homeowners or renters policy normally covers personal property if it's stolen or damaged while in your car. And your life insurance will pay out, regardless of how you meet your end.

To sum rental car insurance options

Before you rent a vehicle, check your auto insurance and homeowners or renters policy to get an idea of what coverage you have while in the rented vehicle. And while at the rental car company, take some time to find out exactly what they offer. Compare those coverages to the ones you already have. That way, you can avoid buying coverage you don't need.