Friday, September 23, 2016

Renting a Car Overseas: What To Do About Insurance?

Here's my attempt at clarifying what you should buy, in terms of insurance, when you rent a car overseas. 

I recently traveled to Mexico and just returned from a trip to South Africa.  For both of these trips, I needed to rent a car.  When I looked online at the prices to rent a car from Cozumel Airport in Mexico, I was surprised to see prices for a ten-day rental ranging from $500 to only $50. 

The rental rate of $50 was obviously too good to be true.  Even though I had rented a car in Mexico before, it had been a while, so I did some research.  Sure enough, the really cheap rate to rent a car in Mexico comes with some very expensive "required" insurance. 


Please be advised that these are notes that I've come up when doing research on this topic, but I am not a lawyer, nor does this blog post constitute legal advice in any way, shape, or form.  You should consult a lawyer or other expert before renting a car or buying insurance rather than relying on the information given here. 

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Renting a car in the US and Canada:
If you rent a car within the US and Canada, you are generally covered by your auto insurer in the US -- if you have an auto policy for your own car in the US.  This policy generally will cover you for collision damage insurance (CDW, also sometimes called loss damage waiver or LDW) if you rent a car in the US or Canada.  CDW covers you in case your rental car suffers physical damage, from collisions with other cars, objects, and even animals. 

Your auto insurance company often will also cover you in the US and Canada for liability insurance.  I'll describe liability insurance later. 

Because you are covered for collision damage (as opposed to liability), you generally can decline any insurance offered by the rental car company.  I myself always decline, knowing that I am already covered for collision and liability by both my auto insurer and my credit card company. 

In the US, whenever I rent a car, I know that I am covered by my credit card benefits for collision insurance (but not liability insurance!).  Here's what one website says:

"Most top-tier travel rewards cards, such as the Chase Sapphire Preferred® Card or the Marriott Rewards® Premier Credit Card, are Visa Signature cards. These cards are a certain class of product within the Visa family and come with benefits simply for being Visa Signature cards. While there are additional perks, specifically in the case the of the Sapphire Preferred, such as the Primary Auto Rental CDW, simply by being a Visa card there are benefits."

In other words, Visa Signature is a line of premium credit cards that gives premium benefits.  One of these benefits is primary collision coverage for auto rentals -- as opposed to secondary coverage.  I'll explain this further below. 

I have an airline-affiliated Mastercard that offers similar benefits as the Visa Signature cards.  This Mastercard is in their line called "World Elite Mastercard."  With Mastercard, however, you can't be sure that all cards of the same line offer the same benefit.  For example, my Mastercard offers primary car rental coverage (collision) but some Mastercards in the same line (World Elite) do not. 

As an example of this coverage, my credit card's benefits booklet states the following:

"Auto Rental Collision Damage Waiver
Decline the rental company's collision insurance and charge the entire rental cost to your ... Mastercard. Coverage is primary and is provided for theft and collision damage for most cars in the U.S. and abroad."


American Express cardholders can buy Amex's product, called Premium Car Rental Protection.  I've heard and read that if you get into an accident and have opted in for this coverage, they take great care of you.  I am not sure that Mastercard's benefits program will take the same great care of you. 

From a forum:
...this coverage is primary--it pays collision and comp (but not liability) damages before your regular auto insurance does. In theory, your insurance carrier wouldn't ever have to know about a claim...

and...

Once you opt-in to the product, your Amex card is automatically charged a flat $24.95 each time you rent ($17.95 for California residents).

and...

I use the Amex Premium Car Rental Insurance at $19.95 per rental. https://www295.americanexpress.com/premium/car-rental-insurance-coverage/home.do

In summary, whenever I rent a car in the US and Canada, I decline the collision and liability insurance offered by the rental car company.  I am pretty sure that I am covered for collision insurance by my credit card; and for liability insurance by my auto insurer.  But only in the US and Canada. 

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Primary versus Secondary Insurance:
The above premium credit cards offer primary coverage.  This means that your credit card benefits administrator will take care of any damage to your rental car first, before your auto insurer.  It appears that these credit card coverages will take care of all costs related to a collision, and there's no deductible.  You're therefore, theoretically, completely taken care of in case of an accident (only for collision and damage, NOT for liability).  Some credit card policies may also have a deductible.

This is great -- because if you don't have credit card coverage for damage to a car, then you will have to call your insurance company.  Relying on your own insurance company likely means that you'll have to pay your deductible, and filing a claim might drive up your insurance premiums.

Most non-premium credit cards offer what is known as "secondary" coverage, which  means that it will only pay out after your personal auto insurance policy has been exhausted (assuming you have such a policy).  Therefore, you'll still have to file a claim with your insurance company, and the credit card will only pick up your deductible.

The folks at autoslash.com have a great explanation of CDW, LDW, and primary verus secondary coverage at:
https://www.autoslash.com/blog-and-tips/posts/a-quick-primer-on-car-rental-insurance

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Renting a car overseas:
If you rent a car outside of the US and Canada, use a credit card that offers collision insurance, and decline the car rental company's insurance, then you are covered for collision damage either primarily or secondarily -- just like the examples above when renting a car in the US and Canada. 

From other websites:
"Most major credit card companies automatically provide this [CDW] coverage to their cardholders if they waive the rental company's coverage and use their credit card to reserve a car and pay for the rental.

Generally, credit card programs do cover you when renting a car overseas, but not in every country. Visa excludes coverage in Israel, Jamaica and Ireland. American Express and MasterCard exclude Australia, New Zealand and Italy too."

In planning to rent a car for my South Africa trip, I was told by my Mastercard credit card benefits administrator that I should decline any CDW offered by the rental car company.  By doing so, the credit card will offer primary CDW coverage.  Many credit card companies offer only secondary CDW coverage.  If I am forced to purchased CDW coverage by the overseas rental car agency, then the credit card offers secondary CDW coverage -- and it will cover the cost of any deductible ("excess").  This is great! 

Some credit card coverages will NOT insure you at all -- unlike my credit card -- if you don't decline CDW offered by the rental card company.  Check with your credit card benefits administrator to be sure about the rules. 

Here's one thing to watch out for, from a forum:

"I know that most credit cards will pay for the collision damage to the car,
up to a certain limit, but be careful of exclusions.... Some have exclusions
such as collision coverage will only extend if on a paved road, etc. "

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Liability Insurance Overseas:
Note that credit card companies' insurance do not cover liability insurance, even the Amex premium policy -- whether in the US or overseas.

If you rent a car outside of the US and Canada, your auto insurer in the US generally does not provide any coverage, be it collision or liability, for your rental car. 

Here's what insurance agent Teresa Carr, of Johnson-Carr Insurance/Farmer's Insurance in Lacey, Washington State wrote:

"...your auto insurance will only cover you in the United States, its territories and in Canada.  ...If you have a policy in California (umbrella) then you have international coverage under the umbrella...[Umbrella policies]... are a BARGAIN for what they cover, under $200 per year for a million in coverage...However, there is a retained limit with that.....meaning you are on the hook for the first 250K, then your umbrella kicks in."

A second insurance agent told me:

"Although your underlying auto policies will not cover any cars rented outside of the US and its territories, your umbrella policy WILL extend the $1,000,000 [or whatever your coverage is] of LIABILITY ONLY to PERSONAL PASSENGER VEHICLES rented on a personal basis anywhere in the world.  For the umbrella liability to flow to the rented car, you should rent the car in your name, and be using it for your personal transportation...Regarding the possibility of damage to the car... the umbrella will not cover this..."

BOLD: So, when you rent a car overseas, it seems that you SHOULD purchase liability insurance.  In South Africa, this is called TPL.  This is required when you rent a car in Mexico also. 

It seems that if you have an umbrella policy, then your auto insurer may cover you when renting a car internationally -- but the deductible may be a staggering $250,000 or more.  

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Here's a summary:
1.  In the US and Canada, decline collision damage insurance (CDW, also sometimes called loss damage waiver or LDW).  You are likely covered by your credit card (if it is a good one) and your auto insurer for CDW. 

Also, in the US and Canada, decline liability insurance.  Your auto insurance company probably already covers you in the US and Canada for liability insurance.  Your credit card almost certainly does NOT include liability insurance. 

(If renting a car in the US, try to pay for the car rental with a premium credit card, and decline the car rental company's collision and liability insurance. 
Your credit card benefits administrator should cover damage to your rental car with primary or secondary coverage.  Your home and auto insurer should also cover you for both collision and liability if renting in the US -- but it's better if your credit card benefits administrator ends up handling any claims first, so your car insurance premiums don't go up. )


2.  If renting a car overseas, try to pay for the car rental with a premium credit card, and decline the car rental company's collision insurance. 
Your credit card benefits administrator should cover damage to your rental car with primary or secondary coverage (note the countries excluded above). 

Your home and auto insurer will generally NOT cover you for liability insurance overseas, unless you buy an umbrella policy.  In my research, your best strategy is to decline the rental car company's collision insurance (your premium credit card will provide primary coverage for collision); but you should probably purchase the rental car company's liability insurance.  Credit card companies don't provide liability insurance as a benefit; and your auto insurer generally won't provide liability insurance overseas unless you have an umbrella policy -- and that will likely have a huge deductible. 

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So what did I do in South Africa?  I checked a few rental car websites.  The prices were reasonable, and all car rentals included, automatically, both collision and liability insurance in the rental price.  I therefore just paid the rental price and got collision and liability insurance that way -- it was extremely difficult to decline these coverages.  So I was covered by paying for it. 

The rental car company also tried to sell me windshield and tire coverage.  I declined these items, which were about $1.50 per day.  I was covered by my credit card company for this insurance. 

I hope that this helps you the next time you rent a car overseas. 

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Some notes: South Africa's car rental agencies rent cars that include "free" CDW.  I cannot decline CDW.  What to do? 

Mastercard card benefit services (MCBS) says yes, I am covered in South Africa.  If CDW is REQUIRED, then sign for the minimum, and card benefit services will cover deductible, also loss of use, towing, and administrative fees.  CDW MUST BE REQUIRED.  Also decline all physical stuff to be insured, such as windshields and tires

What about additional drivers?  MCBS: I should rent the car in my name, put my friend as additional driver.  As long as he is an authorized additional driver, benefits will cover him and me in any accident.  I will have to file the paperwork. 

MCBS: No personal liability is covered (so in SA, get the TPL, personal liability).


The only way to be sure whether your U.S. car insurance policy covers overseas rentals is to contact your car insurance company and ask.

A good rule of thumb is to purchase international insurance that provides the same level of coverage as you have at home.

Before you go on your trip, however, don’t make assumptions about the rental car insurance coverage the card provides. Contact your credit card company to get specific details about your coverage. Particularly, make sure to find out:
Whether the policy applies in the country you are traveling to.
If it includes liability, collision, and comprehensive coverage.
The coverage limits.
Whether you need to pay an additional fee for this coverage.

International auto insurance from credit card companies may officially be secondary insurance, which means that it applies after your primary insurance kicks in. However, if your credit card insurance is your only car insurance while you are abroad, it may, in effect, act as your primary insurance.

The first and most expensive piece of an auto insurance policy is the liability coverage. This pays off if you hurt someone while driving and they sue you -- not just for the damage to their car but also for medical costs, loss of wages and possibly emotional distress. The amount of liability insurance you need wouldn't vary based on the car you drive. (That also means there's no need to take the rental company up on its offer of "additional liability protection," assuming you own a car.)

It's not so simple with comprehensive and collision coverage, which pay to replace or repair your vehicle if it's stolen or damaged. Many people who have older cars go without comprehensive and collision coverage to help reduce premiums.

Many people have auto insurance on their regular cars, which acts as the primary insurer in the case of loss or damage.

Mastercard’s insurance coverage varies by the issuing bank. A USAA World MasterCard, for example, provides largely the same benefits as Visa, but caps loss of use reimbursement at $500.

American Express card holders are afforded the opportunity to a pay a one-time fee per rental of $16 to $25 to change their coverage from secondary to primary. You can enroll online or by calling the company.

Keep in mind, although your rented vehicle is protected, you will need AMEX Premium coverage or a separate insurance to cover possible medical expenses and damages you may cause by accident.

Generally, however, the credit cards don't offer free supplementary liability insurance—damage to other vehicles, property, or people—and luxury vehicles are also excluded from protection.

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