10 reasons to use a credit card – Part 7: Rental car insurance

For those of us that travel and drive often, rental car insurance is a pretty big concern. You hit the road with a car that you have never driven before, and drive hundreds of miles a day to see the Grand Canyon, the Yosemite, the Hoover Dam,….

Accidents are a real risk, and can ruin your trip, especially when you are thousands of miles away from home in unfamiliar territory. Rental car agencies understand the fear, and sell product that insures you against rental car accidents. Added together, these insurance products can be more costly than the cost of renting the car itself.

One of the most popular insurance products for rental cars is collision damage waiver, a policy that releases you from the liability for any damage taken on the car during the rental period. This service usually costs around $15 plus tax a day. It’s really not a bad idea to pay $15 a day for the peace of mind. But if you travel a lot, it adds up quickly.

So far this year, I have had about 20 days of car rental. Had I paid for collision damage waiver (CDW) for all these rentals, that would have cost me approximately a round-trip ticket from Denver to Seattle. Instead, I paid nothing and saved the money for my flights. Why?

Because my credit card fully insured the cars I rented.

Most, if not all, credit cards on the market these days offer free rental car insurance. You use your credit card to pay for the rental, and should damage occur to the car during the rental period, the bank will pay for the insurance. Here’s a big catch:

Most credit cards cover secondary car insurance only.

If you have car insurance on your own, your credit card will pay the deductible, leaving the remaining cost of repair to your car insurance, which would result in a higher insurance premium thereafter. Well, at least the credit card saves you the deductible. Something’s better than nothing.

Here’s where it gets interesting.

If you do not have car insurance on your own, your credit card will pay the entire cost of the repair. Why? Secondary car insurance means they will cover the cost that your insurance does not cover, most often the deductible. But if you don’t have insurance, they will have to cover the entire cost.

I do have car insurance though, since I own a car. The actual reason I didn’t want to bother with CDW from car rental agencies is that I have a credit card that offers primary rental car insurance. It covers the entire cost of the repair should my rental car get damaged. My car insurance would not be affected one bit.

Keep in mind that rental car insurance by credit cards does not cover liability insurance; this will come from either your car insurance policy or need to be purchased separately. Rental car insurance covers damage on the car you rent only, but that alone makes the annual fee on my credit card worth it.

This credit card I am referring to, by the way, is the Chase United Explorer. It is also my favorite travel rewards credit card.

The Chase Sapphire Preferred also covers primary rental car insurance. American Express offers primary rental car insurance for a fixed fee per rental. If you are renting a car, I strongly suggest that you either stick with one of these Chase cards, or pay for the service by Amex.

Hopefully you won’t actually have to use the insurance. Drive safely and enjoy your trip!

-Richard (Hiep Tran)