Stop, Think Before Buying Insurance For Rental Cars

When renting a car, many of you are confronted with a contract, a choice - and confusion.

No, I'm not talking about whether you are renting a two-door or a four-door for a day, weekend or week.

I'm talking about CDW, LDW and PEI. These abbreviations are the forms of rental-car insurance "offered" by different companies. I use the word "offered" because, in many cases, insurance is forced on you as part of the rental transaction. Where it is genuinely offered as an option, it may not be one you need.

Until recently, most car-rental companies made it difficult, if not impossible, to rent a car without "accepting" (i.e., buying) collision and loss insurance. If you didn't accept the insurance, no car.

The daily premiums for this insurance can cost more than $17 per day, a substantial addition to the total rental fee.

But CDW (Collision Damage Waiver) and LDW (Loss Damage Waiver) may not be necessary. PEI (Personal Effects Insurance) really isn't necessary.

CDW is not officially insurance, but a waiver that essentially absolves you of any financial responsibility in the event of any accident or loss. It's the most expensive kind of auto insurance you can buy.

What do you pay in annual premiums for your car? Let's assume you drive a moderately expensive automobile. A typical $32,000 car averages $232 a month for auto insurance; that translates to $2,784 a year.

The CDW on a less expensive rental car (a Ford Taurus, for

example) can run as high as $15 a day. That adds up to a whopping $5,475 annually!

Of all the insurance options, PEI is the least necessary. In theory, it sounds great: If something is stolen from your rental car, you're covered.

Well, not exactly. Most companies limit PEI to a loss of $750. There's a long list of items not covered; the rental car has to have been locked; there has to be visible sign of forced entry; you have to file a police report . . .

Most likely you are probably covered by a homeowners, renters or personal umbrella policy for this. And the red tape and paperwork associated with filing a PEI claim (not to mention the liability limits and exclusions), make PEI (and the folks that pay for it) a joke. Avoid this coverage.

A number of states, Illinois and New York among them, have targeted sales of the CDW and imposed new regulations governing rental firms selling insurance.

Still, most car renters continue to purchase CDW at the counter, when they don't need the coverage.

If you already own a car, check your personal auto insurance policy carefully. It's likely you're already covered for rental-car insurance.

Then there's the credit card option. A number of credit card companies offer a deal whereby, if you rent a car using one of their cards, you are "covered." Each card is different, however, and the definition of terms of "coverage" can be confusing.

You need to read the fine print of your individual cardholder agreement. For example, regular Visa and Mastercards do not provide any rental-car coverage; some Gold Visa and Mastercards do. Both American Express and Diners Club offer rental-car insurance when you use their card.

In many cases, credit cards do offer coverage. But is it primary or secondary coverage?

Primary coverage means that, in the event of an accident or loss, your coverage kicks in immediately from the first dollar.

If that's true in your case, then use that credit card to rent your car and decline CDW and LDW.

If your credit card only offers secondary coverage, you might have a potentially serious problem. Secondary coverage means that, in the event of an accident or loss, the coverage only kicks in after you have exhausted all of your other coverages (personal auto policy, liability policy). Some interpret this as no real coverage at all.

Even if you determine that you will receive primary coverage by using your credit card, that may not mean you're totally covered. It depends on the state where you rent.

For example, if you rent a car in New York, you must agree to pay up to $100 toward the cost of any damage, regardless of fault. In Illinois, $200. In other states, even if you have primary coverage elsewhere and decline the CDW, you're still liable for up to the first $1,000 in damage - again, regardless of fault. (You may have to settle up later with your insurance company or credit card.) Peter Greenberg's syndicated column appears regularly in Travel. Traveling Smart deals with travel-consumer issues on the first Tuesday of each month.