The Truth About Credit Cards & Car Rentals

7 things you should know before relying on your credit card's car insurance.

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Most of us have been told it’s a waste of money to buy the optional insurance coverage when we rent a car. At up to $25 or more per day, it’s definitely not cheap! Furthermore, it has been instilled in us that our credit card or personal auto insurance will have our back if something happens. But can we really count on them?

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Not too long ago, through my site Credit Card Forum, I received an email from a man named Harry. He wrote, “I rented a car in Madrid, Spain. In a tight parking garage I scraped the side—net damage about 649 euros." His rental company assured him that his credit card would cover all of the expenses, but then, after he filed the claim, it was denied. The card issuer told him that coverage applies only in the United States.

His experience brings up an excellent point: If Harry couldn’t even count on his $450 per year card, can you count on your run-of-the-mill no annual fee card to protect you?

The truth of the matter is that the rental coverage offered by your credit card probably isn’t as good as you think it is. Even the best cards have tons of rules and restrictions. Here are some things you should investigate before relying on that piece of plastic.

Vehicle exclusions: Last Christmas I was stuck in a snowstorm at Detroit Metro Airport. Because of the weather, my reserved rental car had not been returned and the only vehicles in stock were cargo vans. I called up my card's customer service to check coverage and guess what? These vans didn't qualify! That's not too surprising, but you may be surprised to learn that SUVs, pickup trucks, and luxury cards are often excluded, too.

Types of claims covered: On your own car, if you have full insurance you are typically covered for collisions, vandalism, weather damage, and more. However, the rental coverage offered by credit cards is much more limited. Typically it only applies to collision and sometimes theft. If someone keys the car, you may be left footing the bill!

Primary or secondary coverage: Most cards offer secondary coverage, which only kicks in after other forms of primary insurance are used (such as your regular car insurance, if applicable). So if you have full coverage, typically the only money the credit card company will be coughing up is for the deductible. Diners Club as well as some credit cards for travel do offer primary coverage, but the vast majority only provide secondary.

Reimbursement caps: As you can expect, there are liability caps on coverage. For example, MasterCard will pay out whichever is less: current market value for the vehicle, the repair costs, or $50,000 per claim. Discover will only provide up to $25,000. The personal version of the AmEx Platinum Card caps liability at $75,000. When you think about it, these are relatively low coverage amounts—replacing one totaled vehicle alone might run $25-40k and let’s not forget the other vehicle involved in the collision (if you were at-fault).

Loss of use and administrative fees: While the car is being repaired, the rental company will charge a “loss of use” fee for each day they’re without it. They may also charge “administrative fees” for processing the claim. Some credit cards cover these, others do not. But here’s the kicker… Even when these fees are covered, often times they won’t pay without seeing the "fleet utilization logs” (to prove the “loss of use” claims are valid, as in, there were no other cars available to rent out). Some rental companies will refuse to provide these logs, citing they are proprietary information. The result? These fees aren't paid because the requested information wasn't provided.

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Length of coverage: How long do you plan on renting for? If it’s just a week or two you should be fine. But Visa and MasterCard start limiting domestic coverage at a maximum of 15 days for some tiers of cards. Discover and American Express cover up to 31 and 30 days, respectively. I don’t know of a single card in existence that normally offers coverage beyond 31 days. That being said, AmEx does offer up to 42 days for an extra fee through the Premium Car Rental Protection program.

Excluded countries: As pointed out above, Harry’s card didn’t cover him anywhere outside the United States. Most credit cards do provide international coverage but they all have countries they exclude. For example, Visa excludes coverage in Jamaica, but if you’ve ever rented a car there then you will understand why! But what I don't understand is their reasoning for Ireland not being eligible.

Conclusion? As you can see, there are a number of different ways you can get screwed when renting a car. Not only do you need to thoroughly investigate the coverage offered by your credit card, but also your personal auto insurance.

Michael Dolen is the founder of CreditCardForum, where you can find him blogging the latest credit card reviews and discussing related topics such as the one above.