The protection racket: are extended warranties, travel insurance or rental car protection worth buying?

Part 2

Car rental waivers

Who gets handed the bill if your rental car is damaged? You do, which is why the guy behind the counter will offer you a collision damage waiver for $10 to $20 a day. This isn’t an insurance policy; it simply means the rental agency agrees not to hold you liable for repair costs.

You can avoid paying waiver fees if your credit card is one of those that provide automatic coverage. But don’t just assume you’re all right — call your card issuer to ask about the limits and conditions of the policy. Some plans cover accidents only if the cardholder is driving, not the cardholder’s spouse. Others require you to pay damages up front and then make a claim for reimbursement later.

Sally Praskey, editor of and co-author of The Insurance Book, recommends that drivers consider adding coverage for non-owned vehicles when they buy or renew the policy on their own car. Usually called a 27 endorsement or something similar, this policy feature covers you when driving any car other than your own. “It’s usually a good way to go,” Praskey says, since the premium is only $25 to $50 a year — much cheaper than paying the collision damage waiver at a rental agency if you rent for more than a couple of days a year.

The only downside to the 27 endorsement, Praskey warns, is that if you have an at-fault accident with the rental car, it will affect the premiums you pay on your auto insurance.

Trip cancellation insurance

If you’ve just spent thousands of dollars to book the vacation of your dreams, it may well make sense for you to spend a couple of hundred dollars more to ensure you won’t be throwing your investment away if you have to cancel. But you should still shop carefully.

It’s easy to pay for more insurance than you really need. Some hotels and resorts, for instance, allow you to cancel reservations with only a couple of days of notice or to re-book later for only a small fee. If that’s the case, buying insurance on your entire vacation becomes far less attractive. Travel agents often quote you a take-it-or-leave-it price to insure your whole trip, but that’s not your only option. After you book your trip, you can call a third-party insurer and pay a premium — usually 5% to 7% of the cost — to insure only the portion of your vacation that is non-refundable. For example, if you’re traveling in North America on a one-week trip, CIBC Travel Insurance offers $5,000 of cancellation coverage for just under $350.

Note that cancellation insurance doesn’t allow you to simply change your mind. “It’s amazing how many people think it does,” says Praskey, the insurance author. Policies usually cover only a death in the family or an illness or an accident that renders you unable to travel. Preexisting conditions are generally excluded, so don’t expect sympathy if your arthritis or diabetes acts up just before your big holiday. Keep in mind, too, that a touch of the runs or a minor injury doesn’t qualify. “You couldn’t cancel a ski vacation because you have a broken leg,” Praskey says. “As long you’re medically able to travel, then you’re on the hook for the cost.”

A few plans do cover cancellation because of specific nonmedical reasons, such as loss of employment, airline strikes and government or weather advisories that urge you to avoid your destination. Be sure you understand the fine print, as policies vary widely. And, as with extended warranties, don’t accept verbal reassurance from the salesperson — read the policy or call the insurer directly with questions.

Part 1: Extended warranties Part 2: Car rental waivers and trip cancellation insurance Part 3: Balance insurance and furnace protection

From the November 2004 issue.

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