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

Some credit cards offer to cover damage to a rental car so you won't need the expensive collision damage waiver coverage pushed by the rental companies. But will this free credit card benefit really offer the protection it promises?

Ask Stacy: Will My Credit Card Really Cover My Rental Car Mishap? Photo (cc) by jasonbolonski

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:

Got more money questions? Browse lots more Ask Stacy answers here.

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