Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florid...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Oct 2, 2020

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So, you’re about to head out on the road trip adventure of a lifetime, but there’s just one problem – you don’t own a car.

Ever since moving out of your parent’s house, you’ve relied on transit, but the temptation of the open road had become too much to resist.

Rental car agencies can solve this problem easily, but before you head down to your local office, stop.

Since you don’t currently have an auto insurance policy, you’ll need to buy your own before hitting the road.

Many people have a credit card which offers insurance. What most do not realize is if you have to use the credit card’s policy you will pay all damages upfront then file a claim later. 

Companies that rent vehicles have their own in-house policies, but they have issues when compared to the product third party providers have to offer.

What are the advantages of buying 3rd party coverage?

We’ll discuss them at length in today’s blog post.

Unlike using your credit card, it is included at booking, and the claims process is much easier if you need to file one.

You’ll Save Money

When renting a vehicle out to customers, agents will often present customers with a CDW (collision damage waiver) or an LDW (loss damage waiver).

You can find out in more about CDW and LDW here

This sounds reasonable to many, as they realize their auto insurance only covers their own vehicle, or as a non-owner of a vehicle, they correctly realize they need to be covered in the event of theft or an accident.

However, the cost of buying such a policy can be quite steep, as many rental agents price their policies well above the per day cost they pay to their insurance company.

Comparison of coverages by priceNote: As illustrated, if you do decide to go with a rental company, the cost can be quite expensive. With third party you can reduce this from 1/4 to 1/3 of the price. Keep this in mind and plan ahead the next time you need a rental.

Some companies charge as much as $30 per day – this can be more than the per day cost to rent the actual vehicle.

Thankfully, you are not legally bound to purchase insurance directly from agencies

As long as you bring in proof that you are already covered by a third party insurer, you can drive off the lot with the car you have reserved.

When you get your car rental damage insurance policy from a company like Bonzah, not only will you pay less due to the lack of mark up over the insurance policy the rental company already holds, but you’ll benefit from the competition present on the open market.

When companies compete against each other to give the consumer the lowest possible price, you win.

It’s as simple as that.

Top Companies Offering Primary Coverage

What some drivers do not realize is using your own auto policy when renting a vehicle is a cheap way to go.

However, if you do have to file a claim your premiums are probably going to go up.

Even if the accident wasn’t your fault.

If you have 3rd party policy you would not have to be concerned about this.

All the companies below are primary coverage so they will pay out before your own insurer does.

CompanyCostPrimary Coverage
BonzahApproximately $8.00 per dayIt will pay out before your own policy.
AllianzApproximately $9.00 per dayIt will pay out before your own insurer.
Insure My Rental CarApproximately $8.00 per dayYou will not need to use your own insurer.
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It Offers more Comprehensive

Not only are CDW and LDW policies offered by car rental companies ungodly expensive, they offer a bare minimum cover to the customers that purchase it.

In some U.S. states, minimum liability can go as low as $25,000 – given the cost of healthcare and the litigious nature of Americans, that amount could be insufficient even in a minor fender bender accident (damage to the bumper + whiplash + obscene hospital charges will clean you out).

When you opt for a third party policy, you can buy into liability plans which cover up to $2,000,000 or more for a fraction of the cost of an in-house plan purchased at the counter of a rental car agency.

Below is a list of companies offer and the low plus high end cost.

As you can see for some they cost can be exceedingly high. 

CoverageWhat does it cover?Typical CostWhat will your policy cover?
Supplemental Liability CoverageIncreases your liability coverage up to $1 million$10 to $20/dayPersonal liability (If you own a car you should have this)
Collision Damage Waiver / Loss Damage Waiver Waives your responsibility for damage to or theft of the rental car$11 to $49/dayComprehensive and collision (If you have full coverage you probably have this)
Personal AccidentProvides medical and accidental death benefits if you or your passengers are injured or killed in an accident$4 to $8/dayPersonal injury protection and health insurance (Many states require this)
Personal Effects CoverageReimburses you for any personal property that is stolen from a rental vehicle$2.50 to $7/dayHomeowners or renters coverage
Total $27.50 to $84/day
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What’s more, CDW and LDW policies are often narrow in scope – in some cases, these policies are no fault – that is to say, the policy will pay for the other driver’s expenses, but not yours.

In other words, they only cover collision, leaving you to pay out of pocket for your medical expenses.

Conversely, third party policies often cover a wide slate of expenses, including the value of goods lost in an accident.

Before adding a policy to your virtual shopping cart, read the fine print so you’ll know exactly what a policy does and does NOT cover.

In most cases, though, they go much further than the standard policy offered by your agent, making a third party insurer the superior choice.

The Claims Process is Quick and Efficient

You can be the best driver on the road, but it doesn’t matter if the guy behind you is checking their phone and rear ends you at a stop light.

Sometimes, accidents happen even when we do nothing wrong.

If you opt to take third party insurance over your rental agents, know that you’ll have to deal with the charges they make up front.

Most credit card collision is secondary, meaning it pays only what you can’t first recover from other insurance, and you may not want to risk a big hit on your regular auto insurance for damage to a rental.

Ed Perkins – Chicago Tribune

For this reason, make sure you keep plenty of room on your card or have enough cash in your checking account to pay them off initially.

Then, keep all the documentation stemming from these charges, copy every receipt, the rental contract, and anything else relevant to the case, and open a claim with your insurance company.

Send it in, and within a short period of time, you should receive a check that will cover all the costs you incur up front.

It can be a pain in the rear at the start, but even when the worst case scenario comes to pass, you’ll pay far less than if you were to agree to the egregious terms set out by the CDW/LDW policies, especially when you consider how little they cover in the first place.

Coverage & Financial Benefits

Third party insurance policies offer the best deal for consumers (and it’s not even close)

When you total up both the upfront costs and how much you can expect to pay should something bad happen, holders of third party insurances come out ahead in both instances.

Rental car companies charge insane amounts of money for policies that barely meet state or provincial minimums while limiting coverage to specific types of damage.

On the other hand, third party insurance providers do not have the luxury of having a ‘captive audience’, as they compete for customers on the open market with other companies.

This means that not only will you pay a lot less per day for coverage, but it provides a much bigger payout should you get into an accident, and covers a wider slate of damages.

Having to cover rental car company damages up front is the only drawback, but it is one that quickly disappears once you open a claim and submit documentation of the expenses you incurred.

Last Word

Have you opted for third party insurance over rental car company policies in the past?

What was your experience?




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