February 27, 2011
After renting a car this past week and feeling like I was
buying a used car (no offense to used car salesman?) with all the options being
offered, I started to contemplate all of the services they offered and thought
that all are not such a great deal.
Insurance
I get this question at work at lot too. The story they tell about lack of insurance is very compelling - and scary. But the insurance is pretty expensive. In one recent (and fun) article on the subject at Car and Driver, the cost of the insurance was half again as much as the rental. In this case, that was $35 a day. In this case, the price covered both the Loss Damage Waiver coverage and the Supplemental Liability Insurance.
Loss Damage Waiver (LDW) coverage (sometimes called CDW for
"collision") covers damage to the car. An important note: it covers
damage
to the car as long as you comply with rental agreement terms. Read
those terms. Driving an SUV off road does not comply with the rental agreement.
Also, pushing or towing anything and racing aren't allowed. And despite the
funny scenes in some movies, you cannot with "willful disregard" allow damage to
the vehicle.
Supplemental Liability Insurance (SLI) goes by many names. This is for damage to other persons from your actions with the car or "willful disregard". Remember that when you are at fault (or just partially at fault) you can be held liable for any damage and injury you caused. We've all seen the commercials for injury lawyers. There are are also additional options for any injury to people in your car. These cost extra of course.
There are many options to this insurance that cost you much less - down to nothing. The first is to look at the benefits on your credit card. Many credit cards offer some kind of coverage. Most would cover full replacement of the car (up to $50,000).
Another option is your personal auto insurance. Your liability insurance on your personal auto goes with you on any car you drive. That eliminates the need for the SLI insurance. Your policy may include a rider for rental cars. If it doesn't, you can likely add it for less than the cost of the rental car company's insurance - and this coverage will last for all year. Be sure to talk to your insurance agent or company about what is available with your policy.
In either case, there are options that cost far less than the coverage offered by the rental car company. It's not bad for everyone. You may be a person who doesn't have a car (New York City residents?) or feel that your personal auto coverage is sorely lacking. In either case, I would still talk to an insurance company first. In all cases, though, make sure you have some coverage. Rolling the dice on an accident is never a good idea. It hurts your credit and frequently others as well.
Prepaid gas
The newer option being offered these days is prepaid gas. I
love the way they sell this. You can buy a full tank of gas and return it
without trying to fill up around the airport. They will tell you that their gas
is cheaper than the stations around them and they will tell you about their
service charge for filling up the car if you fill up more than 2 to 10 miles
from the airport. It sounds like a safe bet that gives you peace of mind. My
warning: anyone pushing you to buy an extra service has something to gain. The
more they push the better it is for
them. There are not that many compassionate people out there.
After a particular pushy agent at a national company gave me the stern warning about the service charge - which I ignored - I started to add up the costs.
Let's look at what you pay for. You pay for a full tank of gas. This is their 'cheap' rate times the manufacturer's stated fuel capacity for the car. There is no credit for unused fuel. So if you are driving a car with an 16 gallon tank and their gas is $3.35 a gallon, the fuel charge is $53.60.
As you leave the rental lot you will immediately notice a gas station. And the price will be at least as expensive as the agent warned you. Long before prepaid fuel, these guys built stations for people to fill up their rental. And you will notice that the cost is higher. Pay attention as you drive away. Two miles is a lot of territory. You'll likely see one that may be cheaper. But let's say it is still 15 cents - or even 25 cents. That first station was pretty convenient. How much more do you pay?
This is the rub: who ever drives their car to complete empty. To do so means that you risk running out of gas outside the lot and someone has to push you in. Even if you can get the fuel light to come on. That is usually still 1/8 of a tank. Most of us will be something under 1/4 tank. So how much more did you pay? Well if you paid for 7/8 of a tank at $3.60 (25 cents more), your cost is $50.40. That's $3 less. Maybe you can't plan your gas to go all the way to 7/8. At 3/4 of a tank your cost is $43.20, a savings of over $10. A two day rental may use only half a tank depending on how much driving you had ($25 less). My three day rental in LA used just 3/4 of a tank - and that was with LA's horrible traffic and several times of getting lost.
There is some benefit to the prepaid option. If you are nervous about making your flight, worried about traffic in a strange city or otherwise likely to not have time to fill the car up, then maybe it makes sense.
Remember the rule, the more they push and try to scare you, the better it is for them.
Links:
Car and Driver, Rental Car Olympics http://www.caranddriver.com/reviews/comparisons/11q1/rental-car_olympics!-comparison_tests
Wikipedia, Damage Waiver http://en.wikipedia.org/wiki/Damage_waiver
Avis, Optional Protections http://redirect.avis.com/services/insurance/index.html
AT&T Universal Card: Extras http://www.universalcard.com/us/cards/ucs/personal/cb_extras.jsp
Thrifty Car Rental enrollment https://www.thrifty.com/BlueChip/Enrollment.aspx
Philip Laube is a CPA in Ohio and the Assistant Vice President for Business & Finance at Muskingum University. He presents and writes about personal finance issues for college students. He can be followed at twitter and on his web site