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What rental car insurance do I need?

AskEd & AnswerEd
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Editor's Note: This story was originally published on November 12, 2007. To see the most recent SmarterTravel articles on related topics, please click on any of the following links: AskEd & AnswerEd, car rental, Ed Perkins, insurance.

This seems to be my month for questions about insurance for rental cars. I'm just winding up a series of columns narrowly focused on the issue "loss of use" coverage by credit cards. Meanwhile, along comes a much broader question that puts the "loss of use" issue into the more general context.
"I drive but do not currently own a car, so do not have car insurance. All the information I see about insurance for rental cars assumes the renter already has personal car insurance. I have a Visa card, which I believe offers some insurance. So what does a renter who doesn't own a car do?"

Although the reader asked specifically about drivers who lack personal insurance, the question raises some topics of interest to just about anyone.

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The short answers to the reader are (1) one way or another, you need both collision and liability insurance, and (2) you have several ways to get the insurance you need.

Car insurance basics

Whenever you get behind the wheel of a rented car, you face two separate kinds of risk:

  • Collision/loss. When you rent a car, you are liable for the value of any damage to or loss/theft of the car you rent during the period it's in your possession.
  • Liability. When you drive any car you are potentially liable for any damage you might do to another person or another person's property (including but not limited to a car.)

Of the two, liability is the far greater risk. In this litigious society, killing or severely injuring someone could potentially wipe out your entire asset base—house, investments, the works. With collision, on the other hand, your financial exposure is limited to the value of a car—certainly not trivial, but at least not potentially unlimited.

Rental car companies sell insurance or waivers to relieve you of both risks. Both, however, are extremely expensive; buy them only when you have no other option.

Liability insurance

As far as I know, all personal auto insurance includes liability if nothing else. Limits are usually generous, and if you have a significant estate, you can buy an "umbrella" policy that increases your coverage to $1 million or more.

Also, as far as I know, most personal auto insurance extends liability coverage to rented cars, at least for occasional use. But by all means make sure of what your policy includes, in case you need some supplemental coverage.

Even if you don't own a car and thus don't have any regular personal auto insurance—or if your regular auto insurance doesn't extend to rented cars—you can easily cover yourself. Many insurance companies sell "non-owner" automobile policies. They cover you not only when you rent cars, but also if you borrow a car from someone. Policies generally cover you for a fixed term, not per-rental.

Credit cards, on the other hand, do not cover liability. If your regular insurance doesn't cover rental cars, or you don't have regular insurance—and you don't buy a non-owner policy—you have no alternative but to buy daily-rate liability coverage from the rental company. Even paying gouge rates is far better than facing unlimited risks without liability insurance.

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