Paying extra to waive `deductible' for rental cars may be a sound step

The two most important pieces of equipment in the car-rental business may be the credit card and the ball-point pen. While some of the paper work has been cut down, customers still have to sign a car-rental form and a credit card charge slip if they charge the rental (which is infinitely easier than using cash or trying to write a check). Then there are all those little boxes that have to be initialed.

One of those boxes for initials is where you agree to shell out an additional $6 or $7 a day to buy the ``collision waiver.'' This frees you from having to pay as much as $1,500 out-of-pocket for repair costs to the car if you are not at fault or if the other driver didn't stay around long enough to provide a name, address, and insurance company.

Business travelers are used to signing these forms and know more about the ins and outs of various insurance options. But for the non-business traveler who rents a car only on vacation -- as many will do this summer -- figuring out what rental-car ``options'' to buy can be harder than deciding whether to go for the ``sport trim package'' on your own car.

Somewhere deep in the car-rental agreement is your pledge to return the car in the same condition it was rented, except for normal wear and tear. If there is an accident, however, someone has to pay for damage.

If you can't get help from the other driver's insurance company, then you must start with your own. In most states, car insurance policies will pay up to $1,000 ($2,000 in New York State) for liability arising out of a contract agreement, such as a car rental.

Until a few years ago, that made it unnecessary to pay for the deductible waiver, since the rental companies' deductible was also $1,000. People who were renting a car for a day or two may have bought the coverage anyway to cut down on paper work and to avoid contact with their insurance companies, but anyone renting a car for a longer period, say a week or more, probably skipped it.

That may not be a wise move anymore. Within the last year, most of the major car rental companies have raised their deductibles to $2,500.

In defense of the increases, the rental companies cite the rising cost of cars and the expense of repairing them. While agreeing with this argument up to a point, Richard J. Ulrich, personal lines officer at the Kemper Group, sees the profit motive at work. A higher deductible means more people will pay the few dollars a day extra needed to avoid it.

``These companies are making a lot of money on this,'' Mr. Ulrich says. Most of the rental companies charge $6.95 a day to waive the deductible, which comes to $48.65 a week extra -- a figure that is not featured prominently in those ads for special rates on weekly rentals in Florida, for example, even though the high deductible makes the waiver a necessity for most people.

``We don't look at this as a profit center,'' contends Susan Haberle, spokeswoman for National Car Rental, which, like Hertz, Thrifty, and Budget, uses a $2,500 deductible. Of the five major firms, only Avis has a lower deductible, at $1,500.

If your car-rental company has a $2,500 deductible and a mishap causes $3,000 worth of damage to the car, here's how the expenses break down: The rental company's insurance company pays for $500. Your insurance pays $1,000, leaving you with $1,500 to pay out of your pocket, unless you purchased the deductible waiver.

Given these options, there seems little wise choice but to pay for the waiver, even if you're helping the rental companies make a bigger profit. Also, many people do not have full collision coverage on their own cars, since these cars may be older and not worth the higher premiums. These people should also get the collision waiver on rental cars.

You can take some comfort, however, in the future. As of Oct. 1, car insurers in most states will adopt what is known as the family auto policy. This means you would be responsible for only the same deductible on rental cars as is applied to your own car. So if you have a $1,000 deductible on your car, that's what it would be on a rented car, too. That still may seem high, but many people have found it makes more sense to pay lower insurance premiums and ``self-insure'' for the $1,000, that is, take the money out of savings if repairs are needed.

As long as we're thinking about rental agreements, there's another line on it worth considering. If both you and your spouse -- or anyone you're traveling with -- are going to drive the car (even if it's only a remote possibility; you could get tired), be sure both of you sign the additional driver form, so both of you are covered by the rental company's insurance.

If you would like a question considered for publication in this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.

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