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Hold your Nose... and buy the coverage

For most of us, the cost of a rental car is bad enough. Then, they start pushing the insurance stuff at us - $20 a day for this, or $30 a day for that. Who needs it? Besides, our personal auto policies cover rentals, and our credit cards say something about providing insurance for rentals, too. Right?

So we routinely initial the decline boxes, trusting that if we do have an accident we will somehow be covered. We hope.

What most of us don't realize is that the rental agreement (the one we carefully read every time we rent a car) is stacked against us. All those pages and fine print talk about fees and valuations and procedures that could cost us a lot of money beyond what our personal insurance policies and credit cards may cover, not to mention the time and aggravation that goes with sorting out an accident.

Here's what you need to know

First, talk to your insurance agent and find out exactly what your personal auto insurance covers – and does not cover. If your credit card company provides rental car coverage, have the same conversation with them.

Generally, your own auto insurance extends to a rental car in the same way that it applies to the cars you own. For example, if you don't have collision and comprehensive on your own car, your rental won't have it either. Plus, there may be rental car restrictions on your personal insurance. Often auto insurers will not cover cars rented outside the United States.

However, having adequate insurance on your own cars isn't the end of the story for rentals. Remember the rental agreement – the small print contains language that can extend your financial liability beyond your insurance coverage. For starters, the rental agreement designates the rental company as the sole determiner of the value of the vehicle. If the car rental company comes up with a value that exceeds the formula in your insurance policy, guess what – you're on the hook for the difference.

Then, there are the fees. First, administrative fees for things like towing, storage, appraisal, and claims adjustment. None of these expenses are typically covered by your own auto insurance. Second, the rental agreement generally imposes a loss of use clause to cover lost income to the rental company. Never mind that the company may have unused rental vehicles sitting on the lot.

The real back-breaker though is the diminution-of-value charge that protects the rental car company from financial loss on badly damaged vehicles that can only be sold for salvage value. This can add up to thousand of dollars – quickly. While not all rental companies set diminution-of-value rates, many do, and the only way to know if it applies is to read the contract.

While your personal auto insurance may cover some of these fees, it is unlikely that they will all be covered.

So, what to do?

Even though most collision damage waiver (CDW) and loss damage waiver (LDW) charges are considered outrageous, our opinion is to buy the coverage for short-term rentals. Considering the fees you could be charged for so much as a ding on the door, CDW and LDW is probably a wise precaution.

For longer term rentals and questions about additional liability, please call 800.649.9111.

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