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Don't automatically refuse extra rental car insurance coverage

Credit cards once offered blanket protection; policies now vary

By Michelle Crouch

You're standing at the rental car counter, and the agent is urging you to buy the company's collision damage coverage, warning that your personal auto insurance and your credit card protection may not cover all the fees if you get in a wreck.

Don't automatically refuse extra rental car insurance coverage

Before you brush off his offer, do your homework. The fact is, these days, he may be right.

Rental car companies are continuing to tack extra fees onto the damages you owe if you have a wreck, industry observers say. Often, those charges aren't covered by your personal auto insurance or your credit card. (See "Chart: Compare credit cards' rental car insurance policies")

A Colorado Supreme Court case in September 2012, apparently the first to address the legality of such fees, confirmed a rental car company's right to charge some of them, including so-called loss-of-use and administrative fees. But that case is binding only in Colorado, and many insurers and credit card companies still refuse to pay

"The credit card companies are telling customers that they're covered, but that's not always true," said Andrew Sutter, president of Orlando, Fla.-based Total Fleet Solutions, which collects claims for rental car companies. "They will cover the vehicle but then they don't want to pay these other fees, and we wind up in a major fight. At end of the day, it's the credit card consumer who is on the hook."

What your card covers ... sort of
Most major credit cards come with no-cost rental car collision and theft protection. All Visa, American Express, Discover and Diners Club cards marketed today have the coverage, while MasterCard offers it to those at elite levels who have better credit.

The type of coverage varies, however. All Diner's Club cards and the Discover Escape card offer primary coverage, which means you don't have to file a claim with your car insurance and there's no chance of a premium increase. American Express customers can get the same benefit by paying $24.95 per rental period ($17.95 in California). 

Other cards offer secondary coverage, which will theoretically pick up the tab for anything your primary insurance doesn't cover, such as your deductible, towing charges and other fees. If you don't have personal auto insurance, it may even reimburse you for the entire cost of the damage.

Sound good? It's certainly better than paying a ridiculous amount for the rental car company's collision damage waiver. But you have to watch the fine print. To start with, to get the coverage you need to:

  • Decline the rental company's collision waiver.
  • Be the primary renter of the car.
  • Pay for the car in full with the card that provides the protection.

After that it gets more complicated, with exclusions, limits and requirements that vary by issuer (and which we spell out in our chart). For example, under most issuers, you probably won't be covered if you rent a pickup truck, drive the car in Ireland or keep the car for more than 30 days.

Gaps in coverage
When it comes to the extra fees rental car companies charge on top of actual damage costs, whether you're covered is less clear. Kimberly Esquivel of San Antonio found that out the hard way when she and her family rented a car from Alamo in Orlando, Fla.

They say, 'We've got you covered,' but that's not true.

--Kimberly Esquivel 
Rental car customer

Before they left, Esquivel said she called Discover to make sure she was covered, since she didn't have protection through her auto insurance. "The woman said, 'Just make sure you use your card to pay for it and you'll be covered. You won't have to worry about a thing,'" Esquivel recalled.

Of course, the worst happened. At SeaWorld, Esquivel backed the car into a pole. She reported the accident to Discover, sent them the necessary paperwork and put it out of her mind. Several weeks later, she got a bill for almost $1,000.

Discover had paid $3,000 to repair the car, but had refused to pay various administrative fees and a so-called "loss-of-use fee" for each day the car was in the shop and the agency couldn't rent it.

"It was very, very frustrating," Esquivel says. "They say, 'We've got you covered,' but that's not true. I'd been a customer with Discover for almost 20 years. That was the first time in 20 years that I really needed them, and they let me down."

When you rent a vehicle, do you buy the extra insurance coverage from the rental agency?

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Fees and more fees
In its fine print, Discover says it doesn't cover loss-of-use fees. (Alamo told Esquivel the customer service rep should have explained that when Esquivel first called.)

The other issuers say they do. That can be misleading, however, because some pay such fees only if they can get a "fleet utilization log" from the rental company showing it didn't have other cars available to replace the damaged one. They say they shouldn't have to pay if the rental agency isn't suffering any loss from not having the car on the lot.

Rental car companies disagree. They argue that they're entitled to a loss-of-use fee even if they have plenty of cars on the lot. "When you lose the ability to use something you own, you have the right to be compensated for it, no matter what is happening with your other cars," said David Purinton, president of PurCo, a Utah company that handles claims for rental car companies and the defendant in the Colorado case. 

As a result, most rental companies, including Hertz, Avis and Budget, won't provide utilization logs. "We consider those logs to be proprietary and confidential," said Hertz spokeswoman Paula Rivera.

That tug-of-war can leave you stuck with the bill.

Loss-of-use fees aren't the only ones that cause problems. Diminution-in-value or diminished value fees, designed to cover the inherent loss of value to the car because it's been damaged, are becoming increasingly common and can add up to thousands more dollars.

Claims administrators say they have noticed more disputes recently arising over diminished value. They note that's partly because vehicle history report services such as Carfax have made it more difficult to sell cars that have been damaged, so rental car companies have become more vigilant about collecting the fee.

"There may be 20 or 30 of the exact same Nissan Sentra at a rental car auction, so of course if the car has been in an accident you're going to get less," said Randy Harris, president of Khoury-Alternative Claims Management, a third party administrator that specializes in car rental claims. "But pretty much none of the credit card companies are willing to pay it, so we have to pursue the renter for it."

Another fee to watch out for: administrative processing fees, usually a few hundred dollars. Most credit card companies say they'll cover those types of fees as long as they're "reasonable," but that's the problem. Who decides what's reasonable?

Should you buy the extra coverage?
So does all this mean you should take the $15 to $25 a day collision damage waiver offered by the rental agency? Not necessarily. It depends what level of risk you're willing to take and what coverage you have.

First, call your primary auto insurance and ask specifically what your policy covers. Auto insurers are required by law in some states to pay loss-of-use and other fees. Others may cover some of those costs but only up to a certain amount, or offer to sell you a rider to cover the fees, according to the Insurance Information Institute. And a few insurers have negotiated contracts with rental car companies that protect their members from specific fees. For example, Avis, Budget, Enterprise and Hertz waive loss-of-use fees for USAA policyholders who use a USAA discount code or book through USAA's website. So be sure to ask your agent if your insurer has any similar deals.

Once you understand your auto insurance coverage, choose carefully when selecting a credit card for a car rental. Use a card that offers primary coverage if you have it, and ask your issuer how it handles loss-of-use, administrative and diminution-in-value fees.

 And you may want to consider this: Rental car claims administrators in three different states told CreditCards.com that Visa has historically been the most willing to pay loss-of-use and administrative fees.

"Visa is by far the best, and MasterCard is getting better," Purinton said. "I got a few denials just last week from American Express in Colorado, even though that's where we won the court case. Obviously, the news is still trickling down."

Want to protect yourself at the rental counter? Use this checklist (download a printer-friendly .pdf checklist).

CHECKLIST: HOW TO PROTECT YOURSELF WHEN RENTING A CAR
Questions to ask your auto insurance agent before you rent:
  Do I have collision coverage? (If you have an older vehicle and dropped that coverage, you won't have it on your rental.)
  Does my policy extend to rental cars? (Most do.)
  Am I covered outside the United States? Are any countries excluded?
  Is there a limit on how long I can rent the car?
  Are there any vehicle exclusions?
  Does my policy cover loss-of-use and other fees charged by the rental car company?
  How much liability coverage do I have?
Questions to ask your credit card issuer before you rent:
  Do I have rental car coverage? Is it secondary or primary?
  Does it cover collisions only or collisions and theft?
  What's the maximum reimbursement?
  Does it cover vehicles rented outside the United States? Are there any vehicle exclusions? (Some won't cover pickup trucks, moving vans or some types of SUVs.)
  Is there a limit on how long I can rent the car?
  Does my policy cover loss-of-use and other fees charged by the rental car company?
At the rental car counter:
  Decline the rental company's collision waiver.
  Pay for the car in full with the credit card that provides the protection.
  Include the names of any other people you expect to drive the car on the rental contract. Many insurance programs won't cover a driver who isn't on the contract.
  Once you get the car, don't speed, drive on an unpaved road or drive while intoxicated. All can invalidate your coverage.

See related: Chart: Compare credit cards' rental car insurance policies, Most rental car companies accept debit cards, survey finds, How to protect yourself when renting a car: checklist 

Updated: March 28, 2013


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