Hello! Good day! I’m still alive!
For those of you who follow the blog regularly, you’ll know that I haven’t posted in a while and may be wondering where the heck I went. Well, long story short, I felt like I didn’t have anything particularly interesting to share, and since Michael and Esther were kicking ass with their recent posts, I didn’t feel any need to pipe in. This has definitely been a huge benefit to co-authoring a blog, since none of us feel pressured to write and we can still manage to keep up content with one or two of us writing at a time.
Anyway, getting back on point — a few weeks ago I traveled with a friend to Houston (for a music festival) for a weekend, and we decided to be a good idea to rent a car. Given that we’re both under 25, I immediately went and booked something using the USAA rate code, which both waives the under 25 fees and additional driver fees as long as you have a USAA login (you don’t need to have any products with them whatsoever!) (Thanks to Million Mile Secrets and my friend Jacob for tipping me off to this).
What didn’t occur to me until the day before the trip, however, was that I actually have no car insurance. And not only that, I didn’t even know what car insurance was legally required.
Googling wasn’t immediately helpful in untangling the offerings of car rental companies and the legality of renting a car if you’re not covered on a car owner’s policy or a rider to your homeowner’s or renter’s insurance. So I did some asking around, and after familiarizing myself with the terminology, I was able to untangled the mess of laws and names in order to make enough sense of it that I was comfortable going through with my rental.
Here are the flavors:
- (Personal) Liability Insurance: This is the insurance that’s legally required by most (all except Virginia and one other, if I recall correctly). It basically makes sure that you are covered for some amount in the event that you owe damages to another person (hospital bills) or another person’s property. Roughly, you can think of it is a way of the government making sure that other people don’t get screwed by your own bad driving. The minimum coverage for this is actually quite low, and if you’re curious, you can look at the requirements in the Wikipedia article.
- Collision Insurance: Specifically covers damages to cars. If your car gets totalled (or nicked or scratched, but you’re probably better off not filing a claim in those cases), you pay a certain deductible and then get reimbursed for the amount of the damages. If you think about it, the coverage amount is capped by the replacement value of your car (or stated limit of the policy), so often times people will drive without this (or full coverage insurance, which includes Collision and Liability insurance).
Although these make sense in isolation, it’s not entirely clear how they map to rental car company insurance offerings, since they (intentionally to confuse you) go by different names.
- (Supplemental) Liability Insurance: First things first — all rental car companies include the legally mandated liability insurance coverage in the price of the car rental (except in California; see “What About Liability?“), so off the bat, you can drive a rental car as long as you have a valid driver’s license. However, being the minimum, the coverage amount is minimal, so most people don’t feel comfortable with it and would prefer higher coverage (typically up to $1 million). This is what the “supplemental” part of the liability insurance that rental companies offer refers to.
- Collision Damage Waiver (sometimes call Loss Damage Waiver): Covers damage to the car. It’s analogous to collision insurance except that instead of the insurance company paying you to replace your car as in the case of (car owner’s) collision insurance, it just means that the rental car company won’t come after you for the replacement value of their car.
- Personal Effects Coverage:
Suckers insurance.Insurance that covers damage to stuff you had in the car if you got into an accident. Most homeowner’s and renter’s insurance covers this by default, so don’t pay for it.
What about credit card-provided insurance? A big fuss is made about whether or not a credit card provides primary or secondary car insurance. Primary means that it applies BEFORE any other policy you may have (no need to file a claim and face higher premiums) and secondary means it applies in excess of other insurance. There are two things of note here. First is that (at least according to Visa benefits, the description of which I had to use archive.org to get a copy), if you don’t otherwise have collision insurance, credit card-provided CDW/LDW is primary by default. Second, and more importantly — this is NOT liability insurance. It just covers damage to the car, which is (functionally) capped at the value of the car in the first place. So it’s useful if you hit a stone wall while driving (no, I’m not bitter about my driveway at home at all….), but in the worst case it’s less consequential a coverage than liability insurance.
Since this is a pretty complicated topic, I’m going to dump all of my sources here so you can follow up and reach your own conclusions (and correct me if I’m wrong):
- Wikipedia article on car insurance in the U.S.
- Autoslash’s primer on rental car insurance
- DMV.org on rental car insurance
- NerdWallet guide [NOTE: they have affiliate links in here]
- The original description of the Visa CDW benefit, which states that:
Outside your country of residence or if you do not have automobile insurance, you do not have to claim payment from any other source of insurance before receiving the benefits.
(for those concerned, the Visa guide to benefits corroborates this claim).