Greater Greater Washington

Auto-free car renters juggle complicated insurance options

Urbanites in DC and elsewhere frequently utilize rental cars as an alternative to owning their own vehicles. However, without an auto insurance policy, some renters may be putting themselves at more risk than they realize.


Photo by Roger Penguino on Flickr.

In Washington, roughly a third of households don't have access to a vehicle, but plenty of these people still drive, if only occasionally. Car sharing services like Zipcar are great for quick trips and errands, while traditional rental cars from companies like Enterprise and Hertz often work better for weekend getaways and out-of-town trips.

While Zipcar is designed with non-car owners in mind, the traditional rental car system is set up for people who already own cars, and by extension, carry auto insurance. For those who don't, the insurance options available can be expensive and difficult to understand.

Auto insurance is typically divided into two basic risk categories: collision/damage and liability. Collision coverage usually takes care of damage to or theft of the car; whereas liability insurance covers the damage to another person, their vehicle, and their property, in the event of an incident.

Of the two, liability is the much bigger risk.

Collision risk is essentially capped at the value of the car a person is renting. If they wreck a rental car, without insurance, they're on the hook for paying for that vehicle.

That's an expensive proposition, but it's relatively small compared to the theoretically limitless risk they face in the event that they injure or kill someone while behind the wheel. These days, personal injury attorneys are constantly on the hunt for victims who were hurt or disabled in these types of incidents.

Rental car companies do offer products that protect their customers from both collision and liability risk, but these products are expensive. Enterprise, for example, offers damage waivers for $13.99 - $18.99, and supplemental liability protection for $11.99. That adds an additional $26 to $31 per day to a car rental. In some cases, the price of the insurance and waivers can cost more than the rate for the car itself.

For this reason, travel advisers sometimes say it's best to decline the add-ons that rental car companies offer when you step up to the counter. It's often believed that insurance products are profit-centers for rental companies and bad deals for the customer. This may be true, but only if the customer already carries a good insurance policy.

What about credit cards? Many renters mistakenly believe that their credit card offers adequate protection. But again, if you don't have your own auto insurance, this isn't the case.

Most credit cards offer a type of "secondary collision" coverage, which kicks in only after you've filed claims with your "primary" insurance provider. That might be your auto insurance policy, if you have one, or your homeowners or renters policy, in the event of damage or theft.

Even when credit card coverage does take effect, it might only cover damage to the car you are driving. When I looked at the fine print of my own credit card, I found that the protection is indeed rather limited. It reads:

This coverage is not all-inclusive, which means it does not cover such things as personal injury or personal liability. It does not cover you for any damages to other vehicles or property. It does not cover you for any injury to any party.
Even the "premium" coverage American Express offers, which costs the cardholder an additional $25 per rental, doesn't cover liability risk. The main benefit to AmEx's premium coverage is that it is "primary," so if you do need to file a claim, your auto, homeowners or renters insurance provider doesn't need to handle it, and won't raise your premiums as a result. It's also usually less expensive than the waivers offered by the rental companies.

Many insurance companies offer a product called a "non-owners policy," also referred to as a "named-operator policy." This is auto insurance for people who don't own their own cars. Information about it can be difficult to come by.

I called auto insurance companies who advertise in the area, who then referred me to agents in DC after hearing my ZIP code. After being passed from one person to the next, I eventually got some answers about this product. One agent in DC explained that these policies are often required by law for people who have lost their drivers licenses for one reason or another, and that the premiums can be very high.

When I asked if I could receive a quote, he explained that the average cost of a non-owners policy in DC is roughly $600 per year. He talked me out of getting a quote, recommending instead that I buy insurance through the rental car companies, as the non-owners policy wouldn't offer savings or give me better protection.

For car-free renters, insurance options are limited. Buying supplemental liability protection from rental companies is virtually necessary, unless you are comfortable with the bare-bones, state-mandated level of liability coverage that rental companies are required to provide when you drive off of the lot.

Collision coverage can go either way. For 100% guaranteed protection, you can purchase the damage waivers offered at the time of rental. If you're willing to take on some risk, the secondary coverage offered by most credit cards might be enough to cover your bases.

For car-free renters, the key is homework. Even though the options are expensive, simply assuming that your credit card covers you may be a riskier move than you're willing to take.

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Rob Pitingolo moved to the DC area in mid-2010 and currently resides on Capitol Hill. He also writes about issues of urbanism, economics, transportation and politics at his blog, Extraordinary Observations

Comments

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Nice article, Rob, and great points. This is a serious issue for us who rent cars but don't own insurance.

by 20024 on Aug 11, 2011 3:19 pm • linkreport

"unless you are comfortable with the bare-bones, state-mandated level of liability coverage that rental companies are required to provide when you drive off of the lot."

This seems like kind of a throw-away for such an important point- Rental companies DO provide insurance within your rental by law that covers you up to $30,000(?) a person in liability. Many insured drivers choose this level of coverage with their policies as is. So you at least have coverage for injuring others for an at-fault accident. Point being you are still covered within the requirements of the law, and rental companies almost never make this obvious when renting as a device to sell you more insurance.

Perhaps non-owner insurance could be something car rental agencies sell for folks like us with no car, there is money to be made there.

by DA on Aug 11, 2011 3:33 pm • linkreport

a timely article for me! My car was totaled in June (and the guy didn't carry enough insurance to cover the damage he caused to my car and two others....that was quite the joy to deal with) and we decided to take the plunge into the world of CaBi and Zipcar. But wouldn't you know it, we need to rent a car this weekend to attend a wedding.

by Birdi on Aug 11, 2011 3:39 pm • linkreport

I had been wondering about non-zipcar rentals and insurance.

as a follow-up question, what about coverage when borrowing a friend of relative's car?

by jm on Aug 11, 2011 3:40 pm • linkreport

I got a non-owned auto policy in NY for about $140 a year from Travelers.

by Mike on Aug 11, 2011 3:41 pm • linkreport

A friend of mine who moved to North Carolina and didn't own a car was surprised to discover that there it's drivers who are insured, not cars. He couldn't even get a NC driver's license until he proved that he had some kind of insurance. I forget what he paid but I think it was pretty minimal.

by jfruh on Aug 11, 2011 3:41 pm • linkreport

I faced this issue when I sold my car two years ago. I chose to take out a non-owner's policy with my auto insurer, USAA, which because of a previous good driving and payment record costs only $200 per year. I rent probably 8 times a year, so it's cheaper than getting LDW/supplementary at the rental car counter. It also covers me when I borrow a friend's car.

I recommend that people who are switching to car-free ask their insurers about the option -- the insurer will want to keep at least some of the revenue they're losing as a result of your new car-free lifestyle!

by Ev S on Aug 11, 2011 3:43 pm • linkreport

Regarding non-owners policy. I can't vouch for the situation in MD or VA. When I inquired about it, I got information pertaining to policies in DC, because that's where I live. Given that auto insurance is generally much more expensive in DC than MD or VA, it might be the case that non-owners policies cost less in those places as well.

by Rob Pitingolo on Aug 11, 2011 3:46 pm • linkreport

I'm a non-vehicle owner... If you're eligible for USAA, they have some great deals on non-owner policies. This, combined with a credit card that offers primary insurance seems to be a good combo for me. Also, USAA has agreements with the likes of Avis and Hertz that add LDW coverage at no extra charge.

As much as I dislike Chase, their Continental Airlines OnePass Plus MasterCard has primary insurance (which I use) and I believe is being continued on their United Mileage Plus Explorer Visa Signature cards. Probably worth a look if you are doing lots of renting.

by rob r on Aug 11, 2011 3:51 pm • linkreport

@ jm:what about coverage when borrowing a friend of relative's car?

If someone willfully lends their vehicle, their insurance usually covers things. Problem is that your friend is not going to be happy with the increased premiums, deductibles and other liabilities when something happens.

You need to be careful to whom you lend your car. When you borrow, make sure the lender has coverage that you are comfortable with.

It is a failure of the free market that insurers don't have readily available products for situations like this. Especially large insurers.

by Jasper on Aug 11, 2011 3:52 pm • linkreport

Thanks Jasper. I thought that was the case, but wasn't 100%.

by jm on Aug 11, 2011 3:57 pm • linkreport

Zipcar isn't perfect either:

http://www.nytimes.com/2011/04/23/your-money/23money.html

by Elizabeth on Aug 11, 2011 3:58 pm • linkreport

Individuals who own homes or condos but not cars can inquire with their insurance company about umbrella liability policies that may cover the liability side of rental car accidents.

by steve on Aug 11, 2011 4:22 pm • linkreport

Not related, but still funny. When I first got my own insurance policy in DC, I called a major insurance company and the telephone conservation went like this:

Customer Service Agent: Hi. I'd be happy to provide you with a quote, can I ask what state you are in?

Me: I'm in Washington, D.C.

CS: Okay. And what state is that in?

Me: Excuse me? It's not in a state...

CS: Sir, we do issue policies outside of the United States.

Me: What? I'm in the United States. It's probably on the computer under "District of Columbia".

CS: Oh yeah! I see it now. That's funny, I had never heard of that.

*facepalm*

by Adam L on Aug 11, 2011 4:27 pm • linkreport

@Adam L
Me: I'm in Washington, D.C.

CS: Okay. And what state is that in?

Me: It's probably on the computer under "District of Columbia".

Well at least we now know who's fault the Washington, DC, DC thing on Google Maps is. Thanks a lot.

by MLD on Aug 11, 2011 4:33 pm • linkreport

@Steve

I looked into my home's insurance policy after reading this and I do have umbrella liability coverage, the only problem is that it covers personal injury only to a far, far reduced amount. And when it comes to car accidents, it's the personal injury that's going to be the most expensive.

@MLD

Ha! I can't believe how long that is taking. My bet is that Google Maps will get South Sudan on there before correcting the stupid Washington, DC, DC problem.

by Adam L on Aug 11, 2011 4:40 pm • linkreport

Thanks for this post Rob. There isn't an automatic right answer for this, and it's more evidence that's emblematic that companies (and the market) are having a hard time catching up to the demographic realities in more and more cities. Whether it's not being able to rent the trucks at Home Depot without your own insurance (they won't offer you any) or the lack of insurance companies to explore this market properly, the system is just not set up to serve people who choose to not own a car but still drive.

I do think we'll see this change over time in the coming years as several companies highlight this, make some money, and open up the market for others.

I'm asking my homeowners' insurance about liability coverage and also asking them for quotes for a non-owners' policy, which would be outstanding if I could get it with good coverage for $200 a year or so.

Thanks Rob

by Steve D on Aug 11, 2011 5:03 pm • linkreport

"Me: I'm in Washington, D.C.
CS: Okay. And what state is that in?"

I heard similar stories many years ago about people living in the state of New Mexico who constantly ran into problems placing orders over the phone.

NM resident: My address is yada, yada, New Mexico, zip code yada.
CS: Sorry, sir/madam, we don't ship outside the United States.
NM resident: New Mexico is a state! Look it up.
CS: Sorry, can't ship to Mexico.
NM resident: I'm in the STATE of New Mexico in the United States! We are part of the Union! Yes, you can ship it, you ...

This was many years ago, so it has probably gotten much better with modern databases and computer entry screens for the customer service reps. On-line ordering keeps you away from customer service reps who would not do well on Jeopardy.

by AlanF on Aug 11, 2011 7:09 pm • linkreport

@AlanF, just a few weeks ago I called an insurance agent located on M Street NW and upon hearing my address, they transferred me to "international". The worst part was, "international" would not help me either!! What to do?

by Turnip on Aug 11, 2011 7:21 pm • linkreport

Actually - one day I sat down and read the fine print on the back of my car rental contract. Turns out, the rental agency provides basic liability insurance at the state minimum - the same as Zipcar.

Of course, they won't tell you this since they want you to buy additional insurance.

by Erica on Aug 11, 2011 8:51 pm • linkreport

If you have an Amex and rent regularly, you can buy auto rental insurance through them -- I think it's on the order of $20 per rental, so this works best for longer term instead of one-two day deals.

by karthik on Aug 12, 2011 12:12 am • linkreport

I was on my parents' insurance, even though I didn't live there and rarely drove, for years. Until I turned 25; then they dropped me. I keep meaning to look into a nonowner's policy for the occasional Zipcar, rental, or borrowed car.

by Gavin on Aug 12, 2011 12:29 am • linkreport

ALL Visa cards provide basic collision coverage so long as you pay for your full rental on the card (http://usa.visa.com/personal/cards/benefits/bft_dmg_waiver_personal.html). While this coverage is secondary, it becomes primary if there is no other "collectible" insurance. Therefore, point one, collision coverage, is covered so long as you have a Visa available to pay for your rental (and don't go off renting a Viper or Aston Martin).

Liability is trickier. I can't believe the insurance agent wouldn't even give you a quote, because then we don't know what the terms are this guy was thinking up. And if people with licenses suspended for DUI are often required to carry the coverage, would the "average" be higher than if the pool were mostly safe, non-owner drivers? In any case, one thing to consider if you have an umbrella policy on your homeowners, but that policy won't cover you in a rental car unless you have car insurance, is that non-owners liability MAY count as car insurance. I don't rent cars except for Zipcar enough for it to matter to me (once this year, not at all for the last 2 years before that...I REALLY hate driving), so I just don't have insurance. However, I asked my insurance agent this exact question when we went car-free, and while THEY (Liberty Mutual) do not offer non-owners policies in DC, he said if I got one my umbrella policy on my homeowners would kick in. So, I would get a non-owners policy at the state minimum and then be covered by my $1M homeowner's umbrella liability. Probably cheaper than the car rental company's liability insurance for someone renting a car fairly frequently.

by Ms. D on Aug 16, 2011 11:48 am • linkreport

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