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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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