Should you pay extra to insure your rental car?

As with your personal vehicle, when you rent a car you want to make sure you have adequate insurance coverage for damage to the rental, damage to the property of others, and liability lawsuits. Rental companies will happily sell you coverage, but it isn't cheap.

For example, for a compact car rental from Budget, we recently were quoted a base price of $45 per day (plus tax and the usual jumble of fees). Adding the "recommended" coverages pushed its total daily rate to $100.19 — more than double the base rental rate.

Should you spring for this stuff? If you own and insure your own car, your personal policy likely protects you against big losses you might incur when renting, so the quick answer is "probably not." But detailed below are important exceptions and caveats. And if you don't own a car, there are even more issues to consider.

If you're covered as a driver under your or your family's personal auto insurance policy, and that policy includes collision and comprehensive coverage, it will pay claims for physical damage to cars you rent. Similarly, your own liability coverage continues when you rent. If you hit someone or something, your insurer will pay out and charge you your deductible.

Although most personal auto policies won't cover rentals outside the U.S. and Canada, check what you get before you pay the rental company extra for insurance. The automatic coverage you get in some countries is very high. For example, Hertz automatically includes coverage up to 1 million euros per person for rentals in Italy, and rentals in Spain automatically include unlimited liability coverage. But, as you might expect, the limits in many other foreign countries are far lower — for example, less than $2,000 per injured person in Thailand and $20,000 per accident in Nicaragua.

If you are an employee driving a rental car on company business, your employer's auto insurance policy might provide coverage — but only if your employer has paid extra for it. Also, these policies usually cover only liability, not physical damage.

If you rent using a credit card, you likely get free physical damage coverage — but not liability coverage — as a free perk. It's standard on all American Express, Discover, MasterCard, and Visa cards. You get this protection only if you decline the rental company's physical damage coverage.

If you're still considering buying extra insurance protection from a rental car company, it's important to understand that the coverage is secondary insurance. This means that if you have an accident that your personal auto policy covers — which includes most accidents that occur in the U.S. — before you can collect from the rental company's insurance, you first have to file a claim with your own insurer. In other words, the extra insurance you bought from the rental car company for physical damage or liability really covers only your deductible.

During the checkout process, rental company reps often warn that coverage you get from your personal insurer and credit card doesn't cover you against loss-of-use fees. If you damage the car, the rental company will charge you for loss of use to theoretically recoup money from rentals the company can't make while the vehicles are in a body shop and out of commission. Although these penalties are usually excessive — even though you rent a car for $19/day, a rental company might charge you an undiscounted $45/day "rack rate" for the number of days it takes to repair it, even though the company rarely charges that full rate and even though it might not bother to repair the car — insuring against the risk of these fees doesn't make mathematical sense. Paying the rental companies hefty $20 —$40 per day to cover the unlikely risk of losing $40 —$100 per day for loss-of-use fees just doesn't add up.

If you don't have a personal auto policy or want extra insurance, consider buying coverage from a third party. Companies like Allianz and Insure My Rental Car sell primary insurance for rentals (if you have an accident, you don't have to file a claim with your personal auto insurance company). If you don't own a car, it's worth considering one of these plans, rather than paying what are usually higher rates offered by the rental companies. But, note that these policies don't include liability or loss-of-use coverage.

If you're an American Express cardholder, it's worth considering enrolling in its "Premium Car Rental" program. For a flat fee of $24.95 for each rental you charge to your card, you get primary insurance that offers coverage for rentals that's similar to what get for a personal car with a conventional auto insurer.

Apart from providing primary insurance, the American Express program is a better deal than what the rental companies offer in that you pay a (fairly low) flat fee for each rental (for up to 30—42 consecutive days, depending on the state). The rental companies typically charge $30 or more per day. So, while the American Express fee for a one-day rental is not only less than what most rental companies offer, it's a screaming deal for longer durations.

Delaware Valley Consumers' Checkbook and Checkbook.org is a nonprofit organization that rates service providers to help consumers get the best service and lowest prices. It is supported by individual members and takes no money from the service providers it evaluates. You can access all of Checkbook's ratings of local service providers free of charge until April 5 at www.checkbook.org/Inquirer/Rental-Insurance.