Tis’ the season for renting cars. One of the biggest questions and debates I have with clients is”should I purchase insurance when renting a car?” The answer to this question depends on the coverage you have in place with your existing personal auto policy. Liability will automatically be extended from your personal auto policy, if you carry collision your policy will pay for damage to the rental car. Note you would still have to pay the deductible for any damage then the insurance company would pick up the remainder of the damage.

A significant gap that exists in all personal auto policies when you rent a car is that it will not cover ‘Loss Damage’. This is when the rental companies charge you for loss of rental income while the rental car is being repaired due to an accident. Most rental car companies provide you an option to purchase this coverage. The cost of this coverage can be, and usually is, outrageous.

I hate the consideration of paying for the loss damage waiver when renting a car as the cost of the benefit is typically equivalent to the rental car itself. The ‘do I’ or ‘don’t I’ decision on picking up the protection is a pure risk management decision. I always apply the following rules of risk management to help determine “should I purchase insurance when renting a car?”.

• Don’t risk more than you can afford to lose. This is a measure of severity. If the maximum possible loss could not be paid out of your existing finances without necessitating borrowing or if such a loss might lead to financial hardship then the insurance must be considered.
• Consider the odds. What is the probability that a loss will occur?
• Don’t risk a lot for a little. After weighing the cost of insurance compared to the potential out-of-pocket expense. Don’t self-insure a loss that could be transferred to the insurance carrier for a known, relatively small amount of premium.

Apply the above rules of risk management and answer these questions on whether purchasing the loss damage waiver makes sense when renting a vehicle:

1. Are you familiar with your destination and have you been there and driven there before? The more familiar you are with a location the more you will be aware of the road conditions and hazards that might exist.
2. Will your driving be in the city, suburbs or in the rural country side? The more cars that are on the road in the area where you are driving the more there is a possibility that a loss might occur.
3. How long will you have the rental car in your possession? The more time you have the rental vehicle in your possession the more probability a loss might occur.
4. How many miles per day will you approximately be driving during the rental period? The more time on the road the more probability a loss might occur.
5. Where will the vehicle be parked when not being driven? Street parking, paid lot, driveway, etc.
6. What kind of loss damage waiver benefit does your credit card provide you when you rent a car? Most credit cards provide a small sum like $1,500,sometimes they do offer more. I suggest referring to the benefit summary of the credit card for details.

Personally if I am familiar with a destination/location and not driving that much I would skip the coverage. If it is a place where I have not been before and going to be doing a bit more driving I would seriously consider it. It’s always such a gamble!