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Car rental insurance: Do you really need all that extra coverage?

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By Susan Johnston Taylor, TODAY

(NBC News) - If you’re renting a car this summer, the car rental company will likely offer you insurance. Insurance on a rental car can be pricey, but if something happens during the rental period, you certainly don’t want to be on the hook yourself. Unfortunately, it’s not always clear what coverage overlaps with your existing auto policy or any coverage you may get from your credit card issuer.

Here’s a look at different types of car rental insurance and when to decline or accept each one.

Loss Damage Waiver (LDW)
A loss damage waiver (or collision damage waiver, as it’s sometimes called) “is designed to relieve or waive renters of financial responsibility if their rental car is damaged or stolen,” said Loretta Worters, a spokesperson for the Insurance Information Institute. “In most cases, waivers also provide coverage for loss of use, in the event the rental car company charges for the time a damaged car cannot be used because it is being fixed. An LDW may also cover towing and administrative fees.”

Some credit cards offer car rental coverage that includes a loss damage waiver. In most cases you must pay for the rental using that credit card and decline the rental car company’s own loss damage waiver, according to Jill Gonzalez, analyst at WalletHub, a personal finance website that recently released a report on credit card auto rental insurance. However, many cards will not cover specialty vehicles such as antique cars, full-sized SUVs or large vans. WalletHub’s analysis also found that almost 39 percent of personal credit cards only cover domestic rentals for up to 15 days. Business credit cards sometimes cover rentals lasting up to 30 days, added Gonzalez.

Before declining an LDW from a car rental company, verify coverage with your own auto insurer and/or credit card issuer. “If you are depending on a credit card for insurance protection, ask the credit card company or bank to send you their coverage information in writing,” Worters said. Find out what’s covered, for how long and if there are any coverage limits or exclusions.

Also ask if your credit card offers primary or secondary coverage on a car rental. If it’s secondary coverage, you may have to file a claim with your personal auto insurer first and possibly get a premium increase. With primary coverage, you wouldn’t have to involve your personal auto insurer.

Liability Insurance
Credit card issuers generally don’t offer liability insurance on a car rental, but your own insurance policy may. This type of insurance covers you if you cause damage to another person, and each state has a require minimum amount of liability insurance, but Worters cautions that these minimums may not provide enough coverage, especially if you’re involved in a serious accident.

“Whatever coverage you have on your personal car will transfer to your rental car,” Worters said. “So if you have the state minimum of liability, you might want to consider getting an umbrella liability policy with your home or auto insurer.” She recommends umbrella insurance versus buying supplemental insurance from the car rental company, since umbrella insurance provides year-round coverage instead of a one-time use.

“Non-car owners who are frequent renters can also purchase a non-owner liability policy (from an auto insurer), which not only provides liability protection when renting a car, but also when borrowing someone else’s car,” Worters added.

Personal Accident Insurance
Personal accident insurance, which covers the driver and passengers for medical and ambulance bills for injuries caused in a car crash, is generally not offered by credit card issuers. However, “health insurance or the personal injury protection (PIP) provided by your auto insurance will likely cover medical expenses,” Worters said.

Personal Effects Coverage
This covers the theft of items from a rental car, but you may already have off-premises theft coverage from a homeowners or renters insurance policy. “If you frequently travel with expensive items such as jewelry, cameras, musical instruments or sports equipment, consider a personal articles floater to protect your valuables at home and while traveling,” Worters added.

One caveat: A theft claim on your homeowners or renters insurance policy is subject to a deductible (typically $500 or $1,000 depending on the policy), so if the value of the stolen item is less than the deductible, you’re out of luck.

Some credit cards also offer purchase protection to supplement your own insurance in case an item you purchased with that card is stolen. WalletHub has a separate report on purchase protection.

By understanding what coverage overlaps with your existing insurance policy, you can avoid paying for extra insurance you don’t need every time you rent a car.

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