Car Insurance You Don’t Need to Get in Washington
Daniel Gastel has never been in an auto accident, and if he bangs up a rental car, he gets more than $25,000 of coverage through his Visa card. Yet when he steps up to the rental counter, which he does every month, he sometimes springs for additional insurance.
“There’s a possibility I could get blamed for something and end up paying a lot of money,” says Mr. Gastel, an information-technology consultant.
It’s long been the rental-car industry’s dirty little secret: Only a small percentage of customers who buy additional coverage actually need it or end up ever using it. Between their credit cards, their homeowners and personal auto insurance policies, and backing provided by the companies they work for, most people already have more than enough coverage to pay the cleanup bill in case of an accident.
But as rental car companies look for new ways to make money in this tight economy, sales agents are likely to push these policies even more aggressively. Two of the eight largest rental car agencies; Alamo Rent-A-Car and National Car Rental are in bankruptcy protection, and the others big players are under stiff pressure to beef up the bottom lines.
Rental car firms recently scored a major victory in New York, thanks to some intense lobbying. A new law lets them charge customers in that state up to $12.00 for extra insurance. Before, New York banned companies from selling that coverage as an extra.
Insurance add-ons are so lucrative that Orbitz, the giant online travel company, recently decided to jump into the business. It now offers collision policies on its Web site for $9.00 a day. Thousands of renters buy the additional coverage each month, Orbitz says.
At Hertz, the third largest firm in the industry, about 10% of customers pay $20.00 a day for the collision damage policy, which covers theft of the rental car or damage to it.
In general, additional coverage ranges from about $1.00 (to cover theft of personal items such as luggage left in the vehicle) to more than $25.00 (for taking care of damage to the rental car itself). Rental car companies typically offer between five and seven different coverage options, including several baskets of policies. Selling the extra insurance, or “upselling” as it’s called, is important enough to the industry that employees are trained to push the policies even if a customer has declined them when making a reservation.
“We are obligated by law to let you know, but we don’t try to make it a high pressured sale,” says Susan McGowan, a spokesperson for Cendant’s Avis Group Holdings. “It could have very bad ramifications if you go out and crack up a car and don’t have insurance.”
To be sure, for a handful of renters the extra coverage does make sense. For instance, some auto policies don’t cover people renting for more than a month. And in certain southern states, State Farm Mutual Automobile Insurance Co. only insures renters up to 50 miles into Mexico. Also in Florida and some other states, full coverage pays for damage to the car only, not the person driving.
Creating a ‘Wall’
Still, many people with ample coverage through their normal auto insurance options to buy more protection anyway. “I wouldn’t want to file a claim to my insurance company and raise my insurance rates for a broken taillight,” says M. Michael Laplaca, a Rockville, Md., lawyer. “For a few extra dollars a day, I can put a wall between the rental-car company and my insurance company.”
Before paying for additional policies, renters should contact their auto insurer to find out how much coverage they already have. They should also check with their credit card company because most provide collision coverage if you use their card to rent the car. You may get additional protection from your homeowner’s policy (for items stolen from the rental car) or health insurance (for injuries, including hospitalization). If you’re on a business trip, you may be covered through your company.
If you decide to pick up the additional coverage, make sure you know what you’re getting. For instance, most rental car companies offer personal effects insurance, which covers theft of personal items left in the car during the rental period. But, it typically doesn’t extend to such things as documents, stamps, or even pets.
Likewise, collision and loss damage policies are intended to pick up the tab if a rental car is damaged or stolen. However, this coverage doesn’t apply if a renter causes an accident by speeding, driving on unpaved roads or driving while intoxicated.
Creating a Checklist
Liability insurance also has caveats: It is supposed to kick in if someone or something other than the renter of the rental car is damaged in an accident. However, rental car companies are required by law to provide only the minimum level of liability coverage required in a given state, which could be as little as $15,000.00. So rental companies offer additional coverage of up to $1 million, which isn’t necessary if a driver already has liability coverage up to that amount and many do.
“You basically need to go down a checklist and decide what you need and decide whether you need additional insurance,” said Jeanne Salvatore, spokeswoman for the Insurance Information Institute.
Are You Covered?
Rental car companies push various types of insurance coverage on their customers. Here’s the rundown on each.
Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW) – Pays the bill if the rental car is damaged or stolen; $9 to $25 a day. Your credit card company may already cover this. Another caveat: CDW doesn’t pay for damages if the accident was caused by you speeding or driving on unpaved roads.
Liability Insurance – Gives you up to $1 million in liability coverage to pay damage to property or injury to people outside the rental car; $7 to $9 per day. If you have $1 million of liability coverage on your car or an umbrella policy on your home or car, and many drivers have one or the other, you can forgo this extra insurance.
Personal Accident Insurance – Covers medical / ambulance bills for driver and passengers in rental car; $3 per day. Almost all health insurance policies cover this already.
Personal Effects Coverage – Covers theft of personal items in rental car; $1.25 per day. Homeowners or renters insurance covers most items stolen from the car.
Note: Costs vary depending on the rental car company, state, the location of dealer and type of car rented. Some companies combine coverage. Sources: Insurance Information Institute; WSJ research
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