As busy vacation travelers gear up to get on the road and head for their favorite destination, the last thing they want to think about is car insurance. However, it shouldn’t be dismissed as it could have a big impact on how your vacation money is spent.

Rental Car Coverage and Options for Insurance

by Horia Varlan via Flickr

It would be unfortunate for someone’s vacation money to be spent for fixing or replacing a rental vehicle. Some items are covered under personal auto, but some are not. For example, it won’t cover tires for running over steel spikes when entering an exit-only parking lot or street. It might not cover other things, either.

For years, some finance experts said purchasing car rental insurance is a pricey scam; as long as the personal vehicle owned and insured is parked while the rental car is in use, the full coverage policy will extend to the rental. As long as it is a substitute vehicle the policyholder is given permission to use. Additionally, if you rent the car with a major credit card, many will pay for a deductible or other items with a rental that has been damaged.

The Covered Costs that Do Make Rental Car Insurance a Good Option

Unfortunately, there are some things that neither will cover that would be protected with the rental car policy: Loss of Use, administrative fees, and Diminution of Value.

Loss of Use — the daily rental car costs that the rental company loses because the vehicle is in the shop for repairs for any loss occurred—even if loss is a not-at-fault claim!
Diminution of Value — Loss of market value due to damage, even if the vehicle was properly repaired. Car rental franchise owners lose money when they have a damaged auto when they go to sell the car or attempt to sell it back to the car manufacturer. There are additional fees they incur as well, and it will be passed on to the renter.
Administrative fees — Sometimes the credit card company will pay these, sometimes not. You should know before you sign the rental agreement to aid your decision.

It may add $30 per day for rental car company coverage; but comparing the costs of the additional coverage and the fees one would pay out of pocket, it’s pennies on the dollar. Don’t ever allow an unauthorized driver to drive. All insurance protection from every source will be voided.

Additional Protection

Purchasing an umbrella liability policy from one’s insurance company will provide an additional $1 million in coverage in addition to what is on the auto limit and is usually very cheap. The only caveat is that the liability limits on the auto policy need to be either $300,000 or $500,000. It is an annual policy and will cover liability issues stemming from auto, home, and any other Property & Casualty policies. It may also bridge the gap from the above rental car costs risk, but the policy contract should be clarified before assuming.

Traveling Out of Town, Out of State, or Out of Country?

Whether you rent a car or take your own personal vehicle, you want to check your policy and the state/country requirements for auto insurance protection when traveling. Canada and Mexico both require something in addition to your personal auto policy.

When traveling to another state, your insurance policy will carry over. However, you may not have enough protection for either you, your passengers, your vehicle, or the injured party depending on that state’s insurance laws. If you know the state(s) you are traveling to or through, talk to your insurance company about added protection so you are adequately protected. Again, the umbrella liability is a huge added bonus to protection no matter where you are.

If you love the idea of a comfortably cool climate during the high heat of summer and love what Vancouver, Quebec, Ontario, or Nova Scotia has to offer, you will need a special certificate from your auto insurer. If you don’t have the proper documentation for Canada, you won’t even be allowed to cross the border.

If surfing is your thing, or bright, colorful history and art is your thing, Mexico has the best of both worlds. In Mexico, you can cross the border with no Mexican Car Insurance, but if anything should happen, no matter how minor, you may find yourself rotting in a Mexican prison. If you are lucky enough to have an alternative to imprisonment, you will likely be handed a very large bill to pay or that you have to show proof that you have the ability to pay. Might be a bit of a downer when you are on vacation!

Before taking off to exotic locations out of the US, do your homework and protect yourself and your family while you enjoy your vacation.

Steven Weinberg is author and insurance agent. He blogs frequently for

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