Gold or Platinum Card Might Provide Rental Car Insurance

Question: To save money on auto insurance, I dropped the collision and comprehensive portion of my coverage once my car was 5 years old. I figured I could “self-insure” and simply buy another car if mine were totaled. But a friend recently told me that if I get into an accident in a rental car, I could wind up paying for a brand-new car for the rental company. She said whatever coverage I have on my own car is what applies when I’m renting. Is this true? Does this mean I have to either reinstate the collision and comprehensive coverage on my own car--which I really don’t want to do--or pay for overpriced rental car insurance?

Answer: There are few things in life more annoying or confusing than the high-pressure sales pitch for insurance at the rental car counter. You’re already tired, cranky and confused from a long plane trip and an even longer wait, it seems, in the rental car line, and now you have to sort out whether to pay for a slew of add-ons. But you don’t necessarily have to succumb, if you’ve got the right credit card in your wallet.

Let’s back up. First of all, your friend was right: If you don’t have collision and comprehensive coverage on your own car, you probably don’t have it when you rent a car either. (You can call your insurance company to make sure.) That means if you cause an accident or a tree falls on your rental, you’re responsible for the damage to the rented car. That could include paying the rental company the cost of a new vehicle to replace the one you totaled.

Even people who do have collision and comprehensive coverage can run into problems with rental cars if the car they’re insuring is worth a lot less than the rental, said Candysse Miller, executive director of the Insurance Information Network of California, a trade group. If you drive an old Escort and crash a brand-new rented Lincoln, for example, your collision and comprehensive coverage probably won’t pay for all the damage. You’d be responsible for the difference between what your Escort is insured for and what the Lincoln is worth, she said.

“So where we used to say, ‘Skip the [rental car insurance],’ we now tell people to consider purchasing it,” Miller said.

But if you have a gold or platinum credit card and use it to pay for your rental, you might be able to skip the insurance. Many premium cards--though not all--offer $50,000 or more in rental car coverage, which includes collision and comprehensive as well as reasonable “loss-of-use” charges. (Loss-of-use charges are the fees that rental companies demand to make up for the rents they’re missing while the car is being repaired or replaced.)

You can find out whether your card covers you by checking your cardholder agreement or by calling the toll-free number on the back of the credit card and asking the service representative.

You probably should do this soon. You’ll want to find out whether you’re covered before you rent your next car--not while you’re standing beside its smoking wreckage.

Company 401(k) Match Fills Performance Gaps

Question: I am now eligible for my company 401(k) plan, but the quality of the investment choices leaves a lot to be desired. My plan offers about a dozen funds, but the fact sheets that were provided show that most of the funds lag behind the benchmarks for their respective fund types. I would like to take advantage of investing pretax dollars, but I don’t want to invest in lackluster funds. Should I choose the money market option or skip the 401(k) altogether and invest after-tax dollars on my own in mutual funds of my choice?

Answer: Your fund choices would have to reek like Limburger cheese for you not to contribute at least as much as your company will match. The company match--typically 50 cents for every dollar you contribute, up to 6% or so of your salary--represents an instant 50% return, which helps make up for lackluster fund performance.

Choosing just the money market probably isn’t the best option because your money is unlikely to grow enough to outpace inflation. Your best bet right now is to see whether your choices include a low-cost index fund that tries to mimic a market benchmark. If there’s no index fund, look for a widely diversified stock fund that trails its benchmark the least. If you need help evaluating your 401(k) funds and determining your asset allocation, check out one of the Internet services that provide advice, such as the 401(k) advisory services at https://www.quicken.com, https://www.morningstar.com or https://www.financialengines.com.

After you’ve invested enough to get the full company match, then think about contributing to an individual retirement account or a Roth IRA at a discount brokerage or at a low-cost mutual fund house, such as Vanguard or Fidelity. You’ll have access to a wider array of investment choices, which you can use to round out your asset allocation. For example, you could find a good international stock fund and a bond fund for your IRA money while your 401(k) money goes into the stock and money market funds.

Finally, lobby your company to give you better choices. A fund that lags behind its benchmark by just 1 percentage point a year can cost you more than $141,000 over a 30-year working career, assuming you’re contributing about $5,000 a year to your 401(k); the cost is higher the more you can contribute.

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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at moneytalk@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.