Since the first rental car company was formed in Chicago in 1918, people have been renting and crashing cars they don't own-and facing the financial consequences for their actions.
You may be one of the millions of people who will rent a car while on vacation or when your car is in the shop this year. You'll be faced with a smiling agent, asking you if you want a number of different insurance products added to your rental agreement.
If you're like most people, you won't know the answer, so you'll make a snap “yes” or “no” decision on rental car insurance. But, if you do a little research in advance, you could save yourself $20 a day or avoid being responsible for a large bill in the event you have an accident.
Before purchasing rental insurance, ask yourself these questions:
Who wants me to buy insurance? Insurance coverage is an important profit center for car rental companies. If you don't have an accident, insurance is 100 percent profit for them. If you do have an accident rental insurance policy, it takes your personal insurer off the hook. So they, too, are happy to have you buy the extra insurance.
Do I have a personal auto policy? If you don't own a car, you probably don't have insurance coverage. In that case, you'll need to make sure you have coverage from your credit card or rental company.
Does my personal auto policy cover non-owned automobiles? Most policies include rental cars in their definition of non-owned autos. You may need to check with your agent to see if it matters whether your trip is business or pleasure.
Does my credit card provide coverage? Many do if you charge the rental to their card. Under certain conditions, both collision and liability are covered. In some cases it covers what your personal policy does not, so check with the credit card company to find out what's covered and any limitations on coverage.
Do I need collision damage waivers? Before purchasing damage insurance from the rental company, check to see if you're already insured. Your personal auto policy or credit card insurance may already offer a collision damage waiver.
Do I need additional liability coverage? Your personal auto policy already provides liability coverage. However, you may decide you want additional coverage; some business travelers opt for this.
Am I covered by your employer? Some companies have insurance for employees who rent cars on business trips, so it's worth asking your employer before you make the purchase.
Are additional fees covered? In recent years, rental companies have increased the number and amount of fees they assign to drivers who wreck their cars. The rental company can hold you responsible for loss of income while their vehicle is out of service. They will also want to pass on other charges, such as towing or storage. Some even have “administrative” and “diminished value” fees. Your personal policy may cover these costs, but ask your agent to make sure.
Do you have to insure every risk? You'd pay a deductible if you crashed your own vehicle-you may be willing to pay the same deductible on a rented vehicle. Have a clear understanding of what you're responsible for.
Will you be driving in a foreign country? Your personal policy may have limitations on driving abroad. Credit card and auto club policies can have similar exclusions.
Whether you should buy rental car insurance coverage can be complicated, but it's worth taking the time to survey all of the financial concerns of renting so you can make sure you're properly insured.
Gary Foreman is a former financial planner who founded TheDollarStretcher.com. The site features thousands of articles on how to save your valuable time and money, including more on frugal car rentals.