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Tue, 08 Jan 2013 18:45:00 GMT | By Gordon Powers, MSN Money

Should you buy rental car insurance?

While economical, declining insurance coverage when renting a car may not always be the best choice.

Gordon Powers, MSN Money

Thinking of renting a car?

Whether you settle on the compact or splurge for the SUV, you may have a more important decision to make before you get to the counter: whether to purchase rental car insurance.

It's a difficult decision, given the fact that you may already be covered through your existing car insurance or your credit card.

Rental car insurance, also known as optional vehicle protection or loss damage waiver, can cost as much as $22 per day and shifts liability for collision damage from the person renting the car back to the car rental company. It will generally kick in if the car is vandalized or stolen as well.

The other “accept or decline” decision involves liability insurance, which usually provides protection for up to $1 million and costs about $10 a day over the rental charge.

Most major credit card providers offer rental insurance to cardholders, but often they only make it available to higher-level members, so check with your credit card company first.

Even then, credit cards usually cover only damage to or loss of the rented vehicle, not for other cars, persons, or property.

It also won’t look after "loss of use" charges like towing, storage, impound fees, and other administrative costs while the rental is tied up for repairs.

As well, thanks to increasing costs, some card issuers have recently changed their policies. As a result, you may not have as much basic protection as you thought, although most card companies allow you to purchase supplementary coverage for a modest fee.

Generally, your existing auto insurance will cover you when you rent a car, provided you are using it for recreation and not for business. In other words, running about town shouldn’t be a problem, but renting a vehicle that helps you earn a living might be.

The type of vehicle you rent will also affect your coverage. If you’re renting a cargo van to move someone back to school, for instance, or picking up supplies for the garden, it’s unlikely that your personal or credit card policy will cover you.

You should be OK when it comes to personal belongings, however.

If you have homeowners insurance, for instance, particularly one that includes replacement value coverage for personal property, then your current insurance should cover personal items like tablets or phones that you might leave behind.   

If your existing car insurance policy includes collision and comprehensive coverage, then this should also cover the rental as well, but only within the limits of your current coverage.

If you’ve dropped either comprehensive or collision insurance on your own older car as a way to reduce costs, for instance, you’ll be exposed if your rental car is stolen or damaged in an accident.

The same thing goes if you’ve increased your deductible: you’re only covered for losses in excess of that amount.   

While the odds of having an accident may be slim, they’re not nonexistent. If something doers happen and you file a claim on your personal car insurance policy for an accident you cause involving a rental, things are likely to change.

Your auto insurance company could switch you into a higher category, boosting your premiums at the same time.

By accepting the rental coverage at the counter, you avoid all this. Your insurance company won’t generally be notified since it’s actually not involved in your accident on the rental.

Either way, keep in mind that few Canadian auto policies extend to vehicles rented outside North America. So, if you’re planning to rent a car when you’re abroad, check into the insurance limits required by those countries. You may find that your current insurance is lacking.

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