What car rental insurance should I get if my credit card provides some coverage?

TL;DR: You need liability insurance with a high limit. Your credit card won't get you that. Try to get your liability insurance from home, and failing that buy it at the rental desk. Your credit card might help you if you wreck the rental car, but read the fine print if you are relying on your credit card for that.

---

You Need Liability Insurance (from somewhere)

You need to secure liability insurance of some sort. If you are involved in an accident where there are personal injuries, your liability can easily exceed your net worth. In other words, an accident can bankrupt you. Exactly how much you might be personally liable for will generally depend on the following:

• the particulars of the accident
• the laws in the place where the accident occurred
• the liability insurance you carry

By definition, you can't predict an accident. Getting a good handle on the laws regarding liability in motor-vehicle accidents in every place you travel is unrealistic. So, the only way you can mitigate your risk is by controlling the liability insurance you carry.

What should my liability insurance limit be?

Insurance policies often have a maximum liability that they will shelter you from. $1 million seems to be common in North America. What does the limit mean? Suppose you are in an accident where you are ultimately found liable for $3 million and you have a policy with a $1 million limit. Suppose you also have a $1 million liability policy. Your insurance will pay $1 million to the plaintiff and you will owe the other $2 million.

So, how do you work out how much coverage you need?

Warning: Unpleasant stuff coming up. If you don't like thinking about accidents, horrible situations, and worst-case scenarios, skip to the next section. The answer is to get the highest liability coverage limit you can get. Everyone else, read on.

Here's how I work out how much liability insurance I carry. Based on some cursory research I once did, it is my understanding that many courts use, in part, lifetime lost wages and cost-of-care to calculate damages. So, the worst-case accident is probably maiming a vehicle of young professionals. Let's make some assumptions:

• there are 5 people in the car
• all are professionals earning $70,000 per year
• all are 23 years old
• all are expected to live until 80 years old
• all are injured so badly that they can't ever work again
• all require care costing $30,000 per year for the rest of their lives

The math goes like this: $100,000 per person per year x 5 people x 67 years = $33.5 million. You won't be able to buy a policy that gives you that much coverage (the highest I've found is $10 million), so just get the highest coverage you can obtain.

Some of you might be thinking "I don't need liability insurance because I don't have any net worth to lose if I am liable." That may be true. You may be broke and you may be able to maim a car full of people without you or your non-existent insurance paying them a cent. But, by knowingly driving around uninsured you are effectively saying "I am putting other humans at risk of life and limb and have declined to provide them with any possibility of compensation if I hurt them just so I can save a few bucks on insurance, and I think that's OK." It's your choice. I know where my moral compass points.

Your credit card won't provide you with liability insurance.

I have never seen a credit card that offers liability coverage of any kind for rental cars -- they might be out there, but no card I have been eligible for provides liability coverage. (If you do find one, please link to the policy wording document in the comments.)

Credit card policies typically provide coverage for loss and damage to the vehicle but not liability coverage.

You can get liability insurance from the rental car company, but you won't really know what you're buying.

Every car rental company I have rented from offers some sort of "liability insurance" at the point where you sign the rental agreement. There are a few problems with buying such insurance:

• the coverage limit is usually $1 million or less
• there are usually all sorts of exclusions in the policy wording
• sometimes the rental desk can not even provide you with a policy wording document
• assuming you can get a policy wording document from the desk, it would generally take hours of reading to understand what you are actually covered for
• it is almost impossible to obtain a policy wording document beforehand, and, even if you can get a rental company to provide you with one, there's no guarantee that the one you agree to when you pick up your car will be the same

Despite all of these problems, buying coverage at the rental desk is almost certainly better than not having any coverage. Furthermore, there are many circumstances where it is your only practical means of obtaining liability coverage.

Get liability coverage for your rental car from an insurer in your home country/state/province.

It is common that you can obtain liability insurance for rental vehicles from an insurer in your home country/state/province. The advantages of getting insurance from home over buying it at the rental desk are as follows:

• usually cost less
• usually higher coverage limits are available
• you can set the policy up while you are at home so you don't waste precious vacation time on insurance
• you can learn the details of a single policy and be confident about your coverage regardless of the rental car company you rent from
• it is realistic to understand the coverage you are buying before you need it

In BC, I can obtain travel rental vehicle coverage in three ways:

• "Rental Vehicle Coverage" that is part of the insurance policy for a vehicle I own
• "Unowned Vehicle Coverage" that is part of the insurance policy for a vehicle I own
• "Rental Vehicle Coverage" that is purchased on a per-day basis independent of any vehicle

I suspect that you can get similar insurance in other jurisdictions. I've use each of these three types in the past. When I am confident that I have coverage from home that applies when and where I am renting a car during my travels, I decline the liability coverage offered by the rental company.

Read the fine print!!

I have three things I keep in mind when I buy insurance:

1. The only thing that matters is what is written in the policy wording document.
2. The only thing that matters is what is written in the policy wording document.
3. The only thing that matters is what is written in the policy wording document.

I read all of my insurance policies cover-to-cover. I have never bought an insurance policy where the person selling me the policy did not verbally misrepresent the coverage I was obtaining. Here are two highlights from buying rental vehicle coverage:

• salesperson claimed that loss and damage coverage was actually liability coverage when there was, in fact, no liability coverage at all
• salesperson claimed the policy provided liability coverage for rental vehicles on vacations up to 45 days when it actually excluded vehicles driven "regularly or frequently"

My point here is this: Don't take the word of the salesperson; read the fine print yourself.Insurance policies are, in general, notoriously nuanced -- and generally not in your favor. Are you on an extended vacation? There's probably an exclusion for that. Are you under 25? There's probably an exclusion for that. Did you rent from Sally's Pastel Vee-dub Rentals instead of one of the major rental agencies? Are you driving across a national border? Are you driving outside of your home country or continent? There's probably an exclusion for all of those. Does your drivers license contain characters other than those in the Latin alphabet? There might be an exclusion for that. My point here is this:Whether the policy you have actually provides you real coverage when driving a rental car while traveling very much depends on the fine print of the policy. The only way to figure it out is to read the policy wording for yourself -- have fun!

Jurisdictions with Compulsory Liability Insurance

There are jurisdictions where it is practically impossible to rent a car without adequate liability coverage. There are probably a few places like this all over the world. The only one I am familiar with New South Wales, Australia's CTP Insurance. It took me four hours of research to be confident that I'd actually be covered while driving in NSW. Aussies drive on the left. Canadians on the right. So you can see how it actually mattered at the time. Along the way I also learned that there's no practical coverage limit (which is good), but that coverage ends when you leave a certain class of main roads (which is bad). Anyway, I didn't crash.

I suspect the EU has similar compulsory insurance, but I don't know for sure. I bet there are other places in the world as well.

Your credit card probably covers vehicle loss and damage, but read the fine print if you are relying on it.

The cost of repairing damage to a rental car is rather a minor concern when compared with the millions of dollars at stake in liability coverage. This is because any loss and damage coverage you get will generally be limited to the value of the vehicle. Depending on your financial situation, that might matter a lot or a little. Here's how I recommend evaluating your vehicle loss and damage coverage needs:

Suppose you destroy the vehicle you are renting, can you easily 
afford to pay to replace it?

   If so, then just accept that you might have to buy the 
   rental company a new car if you have a bad day.

   If not, then does your credit card provide coverage?

      If so, read the fine print in the credit card policy 
      to make sure that it really provides the coverage you need.

      If not, does your policy for a vehicle you own provide coverage?

         If so, read the fine print on your vehicle's policy to 
         make sure that it really provides the coverage you need.

         If not, buy loss/damage coverage at the rental desk.

Just like liability policies, vehicle loss and damage policy wording is generally nuanced in ways that favor the insurer and are rife with creative exclusions. If you are relying on vehicle loss and damage insurance to keep you out of a financial bind if you wreck your rental car, make sure you read the fine print carefully. If you read the fine print on your credit card or vehicle's policy and you really are sure you have the coverage you need from there, then you probably don't need to buy the loss/damage coverage (aka loss/damage waiver) at the rental desk.

Read More

Overseas car insurance a minefield for travelers

Question: In September, I rented a car through Sixt at the Brussels airport. The clerk insisted that we purchase insurance even though my Capital One Visa Signature credit card provided it, saying that I needed to buy coverage through Sixt because there are frequently problems with insurance through U.S. credit card companies. Reluctantly, I agreed to take collision/damage insurance at 90 euro for the week. I was never advised of any obligations, or additional charges that would or could be assessed.

As I was returning the car at the airport a week later, I scraped a guard rail and scratched the bumper. Sixt documented the damage. About a week later, I received a final invoice from Sixt which noted the purchased insurance and total, and I considered the matter closed.

Two months later, Sixt charged my card 600 euros (about $810) and sent a letter indicating that it was charging me for damage to the rental car. I disputed the charge with Capital One and supplied documentation that I bought the collision/damage insurance. The credit card company advised that Sixt would have 45 days to respond. I was later told that Sixt never responded to my dispute so the case was closed, and the 600 euro charge was reversed.

In February, I received a notice from a German collection agency, demanding payment of 753 euros owed to Sixt — 600 plus 153 euros in additional fees and penalties. I responded via e-mail and advised that we purchased insurance, so we should not be charged anything.

The receipt I received in Brussels indicates a 600 euro loss/damage waiver; however, since I purchased collision/damage insurance that charge does not apply. A waiver only applies if the insurance is not accepted. Further, if I had been advised at the rental counter that an additional 600 euro would be assessed regardless of whether I bought insurance, I would not have bought it and used insurance covered under my credit card. Moreover, because I purchased insurance through Sixt, it negated any coverage that would have otherwise been available through my credit card.

I have now received another notice from the German collection agency threatening a lawsuit if I do not pay the 753 euros. Sixt intimidated me into buying additional insurance and then misled me by not providing any information regarding my rights and obligations at the time I rented the car. I would like this charge and all fees and penalties to be removed. Can you assist me?

—Curtis Williams, Ventnor, N.J.

Answer: Williams faced a hard sell for Sixt's coverage at the rental car counter, the worst possible place to make decisions about insurance options. He tried to avoid that by doing his research ahead of time about his credit card coverage. But the clerk's high-pressure sales tactics pushed him into buying coverage that he didn't understand—and didn't need.

He's not alone. The alphabet soup of options offered by rental car companies, along with personal insurance policies, travel insurance provisions, and credit card coverage can bewilder travelers. Some 42% pronounced themselves "thoroughly confused" about insurance coverage when renting a car, according to a survey by the National Association of Insurance Commissioners (NAIC).

After the clash with the agent over Williams' credit card coverage, Sixt sold him collision coverage with collision damage waiver (CDW, sometimes also called loss damage waiver or CDW). Rental car companies are quick to point out that CDW is not insurance; it's a waiver that releases you from financial liability if you damage the car. But most renters, including Williams, routinely refer to it as insurance. Williams didn't understand that the CDW noted on his receipt was in fact his coverage, and incorrectly believed that a fee waiver applied only if Sixt's coverage had been declined. It didn't help that the coverage was referred to by three different terms on his dual-language receipt.

Sixt generally advises customers to purchase CDW, according to representative Florian Weiss. When customers say their credit cards have coverage, Sixt staff generally doesn't advise them to buy it, Weiss says.

"The exception to this is if a customer says that the deductible their credit card offers is very high," says Weiss. "But it should be noted that staff at car rental stations cannot tell whether and to what extent a credit card offers comprehensive cover; they rely on customers telling them."

The CDW Williams purchased came with a 600 euro excess, which was noted on his paperwork. Excess is a British term that's equivalent to deductible, and not nomenclature Williams was familiar with. Apparently Williams wasn't aware the coverage he bought came with a deductible of any amount, and says the Sixt agent didn't explain it. Sixt offers various deductible levels, from zero to 1,000 euro, says Weiss.

"As a rule, Sixt staff tell their customers every time they rent that they can opt to reduce their deductible to zero in return for an extra fee," says Weiss. "It seems that Mr. Williams did not choose to do that."

Williams never contested that he damaged the car. He just thought the CDW Sixt sold him would take care of the entire bill. The total damage to the car cost 679 euros, according to Weiss, so the initial 600 euro Sixt charged to Williams' card was correct.

Prior to departure, Williams had checked his coverage with his Capital One Visa Signature card. Credit card coverage often has restrictions on types of cars, location, and rental length; Williams was good to go on all counts. His rental was covered as long as he charged the entire rental on his card and declined the rental car company's CDW/LDW.

Not only was Williams pushed into spending 90 euros on CDW that he didn't need, that CDW did indeed invalidate his coverage through his Capital One Signature Visa card, just as he feared.

He might have been able to avoid the clash with the clerk over insurance if he'd obtained a "letter of eligibility" from Visa, either in advance or by calling Visa from the rental car desk, according to Visa representative Andrew Gerlt. Visa's rental car insurance benefit administrator is available 24 hours a day, 365 days a year at (800) 847-2911.

"This typically serves as reassurance to the rental agency (most often internationally) that there is some level of coverage for the automobile rental therefore they have recourse in the event of an incident and will not then force a consumer to accept and pay for the coverage they offer," says Gerlt.

After Williams disputed the charge with Capital One, Sixt was left with no way to collect its legitimate 600 euro fee. Sixt indicates it did respond to the chargeback inquiry, so it's unclear why Capital One closed the file in Williams' favor.

"That is why the company had to appoint a collection agency, which is the standard way of proceeding in the industry," says Weiss.

After I contacted Sixt, it agreed to call off its collection agency and remove the original charge as well as all penalties, even though the company behaved "correctly and transparently," says Weiss.

"The company considers its customers its most important assets, and does of course want them to choose Sixt next time they rent," says Weiss. "Sixt therefore treats customer satisfaction as its foremost priority."

How can you avoid trouble?

• Learn the details and limits of your credit card coverage ahead of time. Benefits vary tremendously according to card type and issuing bank, and is usually laden with restrictions over rental location, duration, car types and more. Visa won't cover rentals in Jamaica, for example, or cars considered exotic or expensive, or international rentals lasting more than 31 days.

• Find out what other insurance you have and what you need; duplicating coverage is a waste of money but at the same time, you don't want to be liable for the full value of a car. The NAIC's consumer website has tips on what questions to ask.

• Bring documentation to the car rental counter. Whether you're relying on credit card coverage, your personal auto policy or travel insurance, take a copy of paperwork proving you're covered with you to avoid a fight with the rental agent.

• If the rental agent won't accept coverage you're sure is valid, call your credit card company before buying CDW/LDW to make sure you won't lose your benefits.

• If you buy coverage through a rental car company, take the time to read through what you're buying and ask questions. Better to wait a few more minutes than have your vacation—and budget—ruined over a damaged car.

Read More