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Want to save thousands? Forget car ownership and rent instead

Insurance coverage is one of the more complicated parts of renting a vehicle.

AdrianHancu/istockphoto.com

Every Tuesday or Wednesday, about three times a month, Rohit Menon goes online to book a car for the weekend to visit his girlfriend in Mississauga, Ont.

Mr. Menon, 28, has been making these trips from his home in Kitchener, Ont., about an hour's drive away, for about two years. The way he sees it, renting a vehicle is a lot cheaper than owning a one – when done right.

By taking advantage of special weekend rates, Mr. Menon says he pays about $15 per day for the vehicle, including tax but excluding gas. The daily rate is about $30 during the summer months, when demand for car rentals is higher.

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Still, Mr. Menon feels he comes out ahead. Assuming he rents 40 weekends a year –and 26 of those are at the lower weekend rate and 14 at the higher rate – Mr. Menon's says the total per year is just over $1,700, not including gas.

Buying a car would cost about $12,000 to $15,000; with a down payment of about $5,000, Mr. Menon estimates a monthly car payment between $150 and 200. He estimates insurance would be another $150 to 200 per month, given he's a young, male driver. That's a total of about $300 to $400 per month for loan payment and insurance, or about $3,600 to $4,800 per year.

The biggest saving when renting, he believes, is not buying the optional insurance coverage for the rental car, which can range from about $20 to $40 per day, depending on the extent of the coverage and which company and where you're renting from.

"The worst thing I think people do is buy the insurance," Mr. Menon says. "People should try to avoid that as much as possible and consider other [insurance] options."

Mr. Menon has a credit card that offers car rental insurance, which came in handy once, when his car was scratched while parked in a lot overnight. He had to pay the car rental company about $500 up front to fix it, but was then reimbursed by the credit card company within weeks. The bonus, according to Mr. Menon, was that the claim won't be used against him should he decide to buy a car of his own someday.

"That was my biggest concern; whatever happened, I didn't want it affecting my insurance down the road," he says.

Insurance coverage is one of the more complicated parts of renting a vehicle. Industry experts say there's often confusion about what credit cards or individual auto insurance policies will cover with rental vehicles, given the various options. Some consumers may choose to buy the rental insurance, even if they have coverage elsewhere, for convenience and to avoid the potential costs and hassle if there is an accident or other damage to the vehicle.

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"You want to make sure, as a renter, that your coverage is well understood," says Pete Karageorgos, director of consumer and industry relations at the Insurance Bureau of Canada.

For instance, he says consumers should check their credit card agreement before renting to make sure that it covers rental insurance – and what types. The same applies to personal auto insurance policies.

"It's not automatic," says Mr. Karageorgos. "People might think, 'oh, I have my own insurance.' They assume the coverage extension is automatic. It's not, you have to ask for it, apply for it, and have it applied to your policy."

Consumers also need to make sure, if they're relying on their personal auto insurance policy, that it covers what they want on the rental. For instance, some may not cover large commercial vehicles, such a moving van. People who drive old cars may have less coverage than that needed on a rental, which is often a newer vehicle.

The onus is on the renter to make sure they have coverage for any claims, Mr. Karageorgos says.

"If you don't have collision coverage on your auto policy at home, for example, and you rent a car, you're not going to be coverage for collision on the vehicle," he says.

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Mr. Karageorgos has also come across cases where credit card companies seek to have claims covered by the driver's personal auto insurance.

"That could be a challenge for some people," he says. "If you don't read the fine print, that might come back on you."

What's more, your insurance company might fight that move, which could take months. In the meantime, the consumer is left carrying the cost of the damage.

"The key lesson, regardless of which way people decided to go in terms of insuring a rental car, is always consult the policy or agreement wording," he says. "Understand what you have, what you don't have, or what you need."

Some consumers mistakenly believe they're only responsible for the damage they cause to a rental vehicle, says Craig Hirota, member services manager with the Associated Canadian Car Rental Operators.

"They're actually responsible for the car condition the minute they take it off the lot," Mr. Hirota says. Even if it's hit while parked or vandalized, the renter is responsible.

To avoid being blamed for damage you didn't cause before you rent, Mr. Hirota recommends consumers use their smartphone cameras to take pictures or video of the car's condition before they drive it off the rental lot, and again just before they return it.

"Most car rental companies are very vigilant at trying to hold renters accountable for damage to the vehicles," Mr. Hirota says. "Sometimes that vigilance can be a little over-enthusiastic. To eliminate the chance of being held accountable for something that didn't occur during the term of your rental, you want to protect yourself by taking photographs of the vehicle."

Some of the larger car rental companies are also using photo documentation on their end to increase the accuracy of information and reduce the chance of customer disputes.

"What the industry really wants is for the transaction to go smoothly and the customer to be satisfied and be happy with the vehicle they rented," Mr. Hirota says. "Any customer disputes on the back end are never productive, for anybody."

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About the Author
Contributor

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More

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