When Credit Cards Cover Rental Car Insurance

Think twice before paying extra for car insurance because you might already be covered.

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Rental car insurance, known in the business as a collision or loss damage waiver, has long been derided by travel experts as a cash cow for auto rental companies. Unlike primary vehicles, rental cars do not have to be insured, and some auto insurance policies will extend partial coverage to rentals. Damage waivers are far from comprehensive, and are littered with exemptions from high deductibles to exclusions for property damage. And in another mark against rental insurance, your credit card company may pick up the tab with no extra charge.

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What rental insurance does (and doesn’t) cover

Collision damage waivers aren’t insurance, in the strictest sense. Instead, they’re agreements that the rental company can’t levy certain damage charges on the customer, and usually cost between $15 and $25 a day. However, most states impose a minimum insurance requirement that covers injury or death and property damage. State-by-state insurance policies are generally summed up in three numbers: the maximum coverage for each person injured, the total injury coverage, and the coverage for property damage, in thousands.

For example, California’s requirement is 15/30/5. If three people are injured in an accident that causes $10,000 in property damage, the rental company is required to pay $15,000 to the first two who file (using up the entire $30,000) and the first $5,000 in property damages. The at-fault driver is then liable for the extra $15,000 in injury and $5,000 in property damages. This baseline insurance is provided automatically and is factored into the cost of the rental.

Generally, rental car insurance will cover accidents, theft, and natural incidents like falling trees or hail. Some insurance companies will offer varying levels of coverage at different prices. Most will not waive damages if anyone other than the primary renter is driving or if the driver is taking “unreasonable risk,” and will not cover tickets or administrative fees. Policies vary from company to company. Finally, in addition to an overall limit, some rental companies include a daily limit of your coverage.

What primary insurance covers

Many insurance companies will extend their coverage from primary vehicles to rental cars. According to State Farm, many of their policies “cover rentals with the same type and amount of coverage on your personal vehicle.” However, some policies exempt rental cars altogether, have higher deductibles or lower limits, or exclude collision coverage. Some exclude international rentals altogether, while others may require you to pay the damages in full before being reimbursed once you return. As with rental insurance, check with your own policy since they tend to vary from insurer to insurer and state to state.

Will a credit card’s coverage be enough?

All the major card networks—Visa, MasterCard, American Express and Discover—offer some form of rental insurance. Rewards and cash back credit cards (Visa Signatures, World MasterCards, and the upper-echelon AmEx and Discover cards) tend to offer more comprehensive coverage than their pedestrian counterparts. For under $25 per rental period, American Express offers primary coverage: they will cover the damage before your rental or regular insurance policy steps in, saving you the hassle of filing claims. The others offer secondary coverage, and reimburse what the other insurers pass on to you, up to specified limits. Secondary coverage requires you to file a claim with your insurance company, which may lead to higher premiums, but will step in to cover the additional $50 to $100k you might be liable for.

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These credit cards often don’t cover the new rental you take out because the first one’s out of commission, a cost known as “loss of use.” Discover outright excludes loss of use charges, while Visa, MasterCard and AmEx require rental companies to prove that their vehicle fleets are 80 percent booked while your car undergoes repairs, which the rentals often decline to provide. FlyerTalk forums are filled with customer complaints that even AmEx’s premium insurance does not cover loss of use. Credit cards also won’t cover administrative fees, sales taxes (depending on the state) and “diminution of value.” This last is the fee levied by the rental company for lost resale value, which can be quite substantial if the car is battered but not functional.

However, the main reason to buy rental insurance is to avoid getting slammed with tens of thousands in medical fees. Since state-mandated insurance generally doesn’t cover more than $50k, you may leave yourself open to substantial charges. A credit card alleviates this worry. While you might be on your own for administrative fees and loss of use, given the low probability of an accident and the relatively small amount you’re on the hook for, buying additional insurance is generally not recommended.

Tim Chen is the CEO of NerdWallet, a credit card website dedicated to helping consumers find the best gas credit cards for the summer driving season.