During the hot summer season, it's easy to be more concerned with getting a tan than having adequate insurance for your rental car. But not knowing whether your personal auto insurance policy or credit card provides adequate protection can lead you to purchase duplicate coverage or drive off underinsured.
Many people aren't sure how much coverage they already have. About 42 percent of consumers said they were either "thoroughly confused or had only a rough idea about insurance coverage when renting a car," according to a 2007 survey from the National Association of Insurance Commissioners, or NAIC. Of those who held credit cards, around 24 percent said they weren't sure if their credit card provided insurance benefits for car rentals.
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To avoid making a costly mistake when you rent a car, research your existing coverage before taking a vacation. Call your insurance agent and the credit card issuer of the card you plan to use. Ask which types of coverage you have and what the limitations are. Benefits can vary among cards from the same issuer, so inquire about your specific card.
Which types of rental car insurance should you worry about?
Types of coverageJeanne Salvatore, consumer spokeswoman for the Insurance Information Institute, or III, says there are essentially four types of coverage for rental cars, but two in particular are must-haves.
"The most important coverages are the liability and the collision damage waiver. You don't want to make a mistake with either one of those," she says. If you don't have either coverage through your auto insurance or credit card, it might be wise to purchase them through the rental car agency.
1. Collision damage waiver. The collision damage waiver or loss damage waiver, abbreviated as CDW or LDW, protects the rental car against theft or damage.
"Many credit cards will include some level of collision and theft protection," says NAIC president Jane Cline. To use this benefit from your credit card, you have to use that specific card to charge the rental and decline the CDW or LDW offered by the rental car agency.
Cline warns that in most cases the benefit would be secondary to your personal auto insurance. In other words, secondary coverage would supplement your car insurance, which could lead to increased premiums if you have to file a claim.
Cards that provide primary coverage would shield you from increased premiums with your insurance company. For example, Premium Car Rental Protection from American Express offers primary coverage for theft or damage to the rental vehicle at a flat fee of $24.95 per rental period.
A CDW or LDW may also include coverage for costs that occur after an accident, such as towing charges, storage and "loss-of-use" fees, which compensate the rental agency for the amount of time that the damaged car is out of service for repair.
Find out from your card company or auto insurer if the CDW or LDW covers such fees and how it verifies them. For example, MasterRental Insurance for World MasterCard cardholders requires the consumer to get a copy of the vehicle rental location or class-specific fleet utilization log from the rental agency.