Ask Stacy: Will My Credit Card Really Cover My Rental Car Mishap?

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Anyone who’s ever approached a rental car counter knows about the numerous potential “gotchas” that renting a car entails. The most outrageous? Being forced to buy an insurance substitute called “collision damage waiver” that often exceeds the cost of the rental.

Fortunately, there are ways around this coverage, notably by using certain credit cards. But will this free credit card benefit really offer the protection it promises?

Here’s this week’s question.

How do I find out if my credit cards cover some costs of an accident when I am using a rental car? Saw an article that some credit card companies cover this so you don’t have to purchase extra coverage when picking up a rental car at the airport.
– Gerald

It’s nearly impossible to step away from a car rental counter without one of two worries. Buy their overpriced coverage, and you’re afraid you just got taken for an expensive ride. Don’t buy it, and have a nagging doubt the coverage offered by your personal policy or credit card won’t cover you.

Here’s everything you need to know to keep from driving yourself crazy.

What is it they’re trying so hard to sell me?

Rental car companies typically offer four types of coverage:

  • Collision damage waiver (CDW) and loss damage waiver (LDW): While not technically insurance, this transfers the risk of damage from you to the rental car company in the event of accident, vandalism or theft. This is by far the costliest coverage.
  • Supplemental liability insurance (SLI ): As the name implies, this provides an extra $1 million in liability coverage. Liability covers damage to other people and their property.
  • Personal accident insurance (PAI): Pays the medical expenses for you and passengers.
  • Personal effects coverage (PEC): Pays to replace things stolen from the rental car.

Will my personal car policy insurance cover my rental?

If you have full coverage on your personal car, you’ll likely have it on your rental car, rendering all the coverage options above unnecessary. Note, however, if you only carry liability, that’s all you’ll have on your rental. Which means in the event of an accident that’s your fault, you’ll have coverage for other people, cars and property, but you’ll be on the hook for the rental.

If you financed your car, you almost certainly have full coverage, because it’s required by lenders. If you own a fully-paid-for beater, however, and carry minimal coverage, you may be underinsured for a rental. Check your policy before you leave home, either by reading it or calling your company.

Something else to be aware of: Some auto policies may not cover a rental car if you’re using it for business. Know before you go.

One final potential problem with rental cars is “loss of use.” This refers to the amount of time a damaged rental car isn’t available while it’s being fixed. For example, if the damage to the car takes three days to repair, the rental company wants to be paid for the three days the car could potentially have been rented. Your insurance company may refuse to pay, saying it only insures you for actual damages to the rental car, not for lost rental income. The rental car company then passes that bill along to you. They may also charge for things like towing, diminished value and administrative fees.

Coverage from credit cards

Where your personal policy ends, some credits cards begin. This is secondary coverage, meaning it covers what your personal policy won’t. But they’ll pay some expenses not covered by your insurance, like the deductible and some of the additional costs mentioned above. As you might expect with a free perk, however, there are loopholes and differing degrees of coverage. Examples:

  1. What you’re renting: Nearly all credit cards exclude certain types of vehicles. Most exclude pickups, full-size vans, cars considered to be sports cars, exotic cars, antique cars and very expensive cars.
  2. Where you’re renting: Credit card companies seem to have a problem with countries that begin with the letter “I,” excluding rentals in Israel, Ireland and Italy. Other exclusions can include Jamaica, Australia and New Zealand. No matter where you plan on renting a car, make sure the card you use will cover you there.
  3. How you’re paying: The rental-car insurance offered by your credit card is only valid when you use your card to pay for your rental. That sounds simple enough, but what happens when you use an award from a loyalty program, or a coupon for a free day? Even though you might use your credit card to reserve your car and pay for taxes and fees, its insurance won’t cover you if don’t pay the base rate with your card. The use of a simple coupon code shouldn’t invalidate your coverage, so long as you are still paying for most of the rental with your card. Also keep in mind that if your card paid for the rental and your wife/husband/partner is driving, they may deny coverage.
  4. How long you’re renting: Ever thought of renting a car with unlimited miles for an epic cross-country adventure? That works fine – unless you intend to be gone more than 15 days. If so, you aren’t covered by Visa’s policy, which excludes “Rental periods that either exceed or are intended to exceed fifteen (15) consecutive days within your country of residence or thirty-one (31) consecutive days outside your country of residence.”
  5. How you’re using the rental: All rental car coverages, including the ones you pay for at the counter, exclude any actions that violate your rental-car agreement. While it sounds reasonable to exclude such things as commercial use, driving drunk or using the car to commit a crime, most agreements prohibit things you might not expect, like driving on unpaved roads. Consider that next time you rent a car in a rural area or to visit a national park.

What if I don’t have car insurance?

While researching this story, one question I never saw answered: What happens if you don’t have car insurance at all and decline coverage from the rental car company. Would a credit card pay for damages? I called American Express and asked them. Their answer was yes, in that instance they’d pay for damage to the rental car. But they wouldn’t provide liability coverage, which would be critical if damage to other people or property occurred.

This is an example of why it’s so important to know exactly what your card does and doesn’t cover.

What your specific card covers

Nerdwallet offers tables showing which cards offer which coverages. But because these things can change without notice, the best idea is to call your card company before renting. When I called Amex, they answered relatively quickly and were both friendly and knowledgeable.

  • American Express: 800-338-1670
  • Discover: 800-347-2683;
  • MasterCard: 800-622-7747
  • Visa: 800-847-2911

One optional policy

If you’re worried that your insurance or credit card won’t cut it but don’t want to pay for costly coverage at the counter, there’s one more option. American Express offers Premium Car Rental Coverage. For $24.95 per rental, they’ll cover you for up to 42 days with no deductible. This is primary coverage: You won’t have to report an accident to your insurance company.

Although this policy covers trucks and SUVs, it still excludes rentals in some countries. To enroll, you sign up your card once, and this policy is automatically applied when you use that card to rent a car and decline additional coverage.

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About me

I founded Money Talks News in 1991. I’ve earned a CPA (currently inactive), and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. Got some time to kill? You can learn more about me here.

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