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Is The Rental Car Insurance Cover On Your Credit Card Really Free?

Written by  Thursday, 20 November 2014 00:00

Credit CardsImage from Pixabay

Life is expensive. As such, we have all, at one time or another, been seduced by the promise of free stuff. There's free games, free apps, free software and countless retailers that offer buy one, get one frees. Yet the contradiction is that each and every one of those examples is designed to make money for the business offering them.

Credit card companies are no different. Within some credit card agreements you will find a number of free perks designed to attract your custom. These include reward programs, purchase protection and vouchers. In some cases, your credit card will also include rental car insurance, but is it really as free as it is made out?


Do You Pay For Your Credit Card?

Many credit cards charge an annual fee, just for the convenience of using the card and its accompanying perks. The annual fee charged by credit cards varies wildly – ranging anywhere from $15 to $500. If you have to pay for your credit card, then, by definition the perks provided are not free.


As a rule, those credit cards that offer the best perks – such as rental car insurance – are the cards that are more likely to charge an annual fee. Therefore, if you are to enjoy 'free' benefits, the monetary value of the perks you receive will need to exceed the annual fee of your credit card.


You Will Have To Pay For The Rental Car With That Credit Card

The Rental Car insurance coverage provided by most credit card companies is only valid if you reserve and pay for the rental car with that credit card. Plus, although most cards will cover other drivers as long as they are listed on the rental agreement, the cardholder must be the lead driver.


Credit cards are designed to allow you to borrow up to an agreed limit. You are then charged interest on what you borrow before your balance is cleared. As such, by locking you into purchasing your rental car on a particular credit card, you will theoretically be paying interest on your supposedly free rental car insurance.


There May Be Costly Gaps In Your Credit Card's Cover

Many credit cards only provide a Collison Damage Waiver (CDW) as protection. A CDW protects you financially from your rental car company for damage caused to their rental vehicle while in your possession. In most cases however, your credit card will not cover you for loss of use or diminished value.


Loss of use is a term that means the loss of income a rental company experiences whilst one of their vehicles is getting repaired after an accident. Diminished value means the reduction on the re-sale value of a rental car after an accident. Therefore, if you have an accident whilst in a rental car it could still cost you a fortune, even with your credit card cover in place.


Your Insurance Premiums Could Increase In The Future

The rental car insurance cover provided by most credit cards is secondary. This means that if you have personal auto insurance coverage, it will cover the damage first. Afterwards, you can claim back the deductible you have to pay with your primary insurer through your credit card coverage. This means that you may still have to make a claim through your personal auto insurance anyway, which could result in a significant rise in your annual premiums.


Should I Buy CDW Cover From A Standalone Insurance Provider Instead?

Unlike many credit cards, the CDW cover provided by Insuremyrentalcar.com provides cover for loss of use, as well as diminished value in most states*. A CDW/LDW from Insuremyrentalcar.com also covers the roof, undercarriage, tires and windshield – vulnerable areas that are not covered by most credit cards.


Furthermore, when you buy a CDW/LDW with insuremyrentalcar.com, you reduce the chance of your premiums going up in the future. This is because you won't have to notify your personal auto insurance provider for many types of accidents. However, some types of accident are still notifiable, such as those where other cars or passengers are damaged or injured in an accident you’re involved in.


Your rental car company will try and sell you their CDW cover when you pick up your rental car at the counter. However, the rental car company prices are up to 70% more expensive than buying CDW/LDW cover from Insuremyrentalcar.com before you travel. For more information and to grab a quick quote to suit your individual needs, click here.


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* States where Diminution of Value is not included: Alaska, California, Minnesota, Mississippi, Montana, Nevada and Texas