Rental Car Insurance: Do You Need It?

Is it necessary to buy rental car insurance?

The subject of rental car insurance is a source of confusion for many. It is commonly believed that your personal car insurance policy automatically extends coverage to any car you rent. But is this true?

Your personal auto policy may extend coverage to rentals – or it may not. That’s why you need to do your homework before renting to find out.

When it comes to insurance, you really don’t want to take any chances, especially if you could end up on the hook for $30k worth of car (or more) in the unfortunate event of an accident.

Do you really want to take that big of a gamble just to save a few bucks? Are you feeling lucky?

Before you decline rental car insurance when you rent that spiffy red sports car, it’s a good idea to take the time to find out exactly what your personal auto policy does and does not cover. Yes, many personal auto policies do extend coverage to rentals, but not all do. And for the ones that do, there may be some limitations.

Understanding Rental Car Insurance

When you rent a car, the rental car company will often offer you rental car insurance. This is additional coverage on top of your personal auto policy. There are several types of rental car insurance:

• Collision Damage Waiver (CDW)/Loss Damage Waiver (LDW): This waives your financial responsibility if the rental car is damaged or stolen. It may exclude coverage for certain parts of the car and driving under the influence.
• Liability Insurance: Rental companies typically provide a minimum amount of liability coverage. You can purchase Supplemental Liability Protection (SLP) for additional coverage.
• Personal Accident Insurance: Covers medical costs for you and your passengers in case of an accident.
• Personal Effects Coverage: Protects against theft of personal items from the rental car.

Before you opt for rental insurance, check your own auto insurance policy and credit card benefits—they might already offer similar coverage. For instance, your personal auto policy might include collision coverage and comprehensive coverage, which safeguards you against non-collision related damage.

Remember, if you rely on your own policy, your deductible and coverage limits will apply. You may also be responsible for diminished value and loss of use fees from the rental company if the vehicle is damaged under your rental period.

It's crucial to weigh the additional cost against the risk. Read the fine print to fully understand what's covered so you can make an informed decision.

Are You Already Covered?

Your personal auto policy should state in plain language whether it covers rentals and how much coverage is provided.

Step 1: Check Your Regular Car Insurance Policy

Take the time to review your policy before renting so you will know for sure if you are covered. If there is anything in the policy that you don’t understand, contact a company representative to get a clear answer.

It’s important to keep in mind that even if your personal auto insurance policy does extend to rentals, it may not cover a vehicle that is more valuable than the vehicle on your policy. Usually, a rental must be close in value to the car on your policy to be covered. This could leave you with insufficient coverage if you decide to rent a Corvette while on vacation in Tahiti when your auto policy is for a Honda Civic. See the problem?

Some rental car companies also charge fees for various things when accidents occur. It isn’t just the cost of the vehicle you may be on the hook for if you are not sufficiently covered. They may also charge “administrative fees” after an accident or bill you for the repaired vehicle’s decrease in value. While your auto policy may cover the cost of replacing or repairing a wrecked rental, it may not cover the extra fees rental companies charge.

Step 2: Check Your Health Insurance Policy

If you have health insurance through your employer or have a self-employed health insurance plan, then the rental company's personal accident insurance is not suggested. The coverage you have from your health insurance should be enough to cover any medical bills and protect you if anything were to occur.

Step 3: Check Your Credit Card Benefits

Many are unaware that their credit cards may provide additional rental car coverage. The key terms here are “additional” and “may.” Not all credit cards offer this benefit.

The coverage credit cards provide is usually secondary to another policy. In other words, the coverage provided by your credit card may take care of some expenses not covered by your primary policy.

In order to qualify for any coverage from a particular credit card, you have to pay for a rental car with that card. You aren’t automatically covered just because you happen to have the card in your wallet.

To find out if your credit card(s) offer rental car coverage, read the fine print. Check the specific policies of your credit cards to see what they do or do not cover. And if you are ever in doubt or if something is unclear in the policy, contact the company for an answer.

A Collision Damage Waiver Can Offer Additional Protection

I’ve already mentioned how rental car companies may charge you fees in the event of an accident. It’s important to point out that they may also charge you for lost revenue while the car is being repaired. This could end up being a pretty big chunk of change – and it’s money that your personal auto policy may not cover.

You may be able to protect yourself from these fees and liabilities by purchasing a Collision Damage Waiver (CDW). A CDW is not an insurance policy. Instead, it’s a waiver you can purchase from a rental car company that releases you from certain liabilities.

Not all CDWs are the same. Just as you should take the time to review and understand the content of your personal auto policy to know if it extends coverage to rentals, you should also read the fine print on any CDW you are considering buying to know for sure what liabilities it releases you from and if it still leaves you on the hook for anything.

Analyzing Your Current Insurance Policy

Before you can decide whether you need additional insurance for a rental car, take a close look at the insurance policies you already have.

Auto Insurance Policy

Check your auto insurance policy to see if it includes rental car coverage. Some policies may cover you when you are driving a rental, but coverage levels can vary. Look specifically for:

• Liability coverage: protects against damage you cause to other vehicles or property.
• Collision and comprehensive coverage: covers damage to the rental car.

Credit Card Coverage

Review the coverage offered by your credit card. Many credit cards come with rental car insurance as a benefit, but:

• Coverage is typically secondary, kicking in after other forms of insurance.
• There may be restrictions based on car type or rental location.

Typical Credit Card Coverage Benefits

Coverage Type	Benefit Details
Collision Damage	May cover the cost of repairs for the rental.
Theft Protection	Protection if the rental is stolen.
Tow Charges	May include coverage for towing expenses.

Travel Insurance Options

Explore travel insurance that includes rental car coverage. Companies like Allianz offer policies that may provide additional protection while traveling. Keep in mind:

• This may be a good option if you're abroad, where your personal insurance might not apply.
• Coverage can be on a per-trip basis, so consider the duration and nature of your trip.

Health and Renters Insurance Relevance

Your health insurance policy may cover personal injury in a rental car. Meanwhile, your renters insurance policy often covers personal property even when you're away from home, which could include belongings in a rental vehicle. Remember:

• Verify whether your current health or renters insurance extends to rental situations.
• Check if there are geographical limitations or specific exclusions.

Deciding on Additional Coverage

When you rent a car, you have the option to add extra insurance coverage. These options can protect you financially in case of an accident or theft.

Collision Damage Waiver

Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW) releases you from financial responsibility if your rental car is damaged or stolen. While your personal auto insurance might cover this, the CDW can offer additional peace of mind. However, be aware that it may not cover all types of damage.

• What it covers: Damage to the rental car, theft.
• Typical cost range: Varies by rental company and vehicle type.

Supplemental Liability Insurance

Supplemental Liability Insurance (SLI) increases your liability coverage for claims made by a third party for bodily injury or property damage. This is useful if your personal insurance liability limits are low.

• What it covers: Third-party injury or property damage.
• Typical cost range: Varies; often per-day charges apply.

Personal Accident Insurance

Personal Accident Insurance (PAI) provides medical, ambulance, and death benefits for the driver and passengers after an accident. If you already have health insurance or personal injury protection under your auto insurance, check if you need this additional insurance.

• What it covers: Medical bills, ambulance fees, accidental death.
• Typical cost range: Usually a fixed rate per day.

Personal Effects Coverage

With Personal Effects Coverage (PEC), you're insured against theft of or damage to personal items while they're in the rental car. Consider this if you're traveling with valuable items, but first, check if your homeowners or travel insurance offers similar coverage.

• What it covers: Theft or damage to personal belongings in the car.
• Typical cost range: May depend on the value of the property covered.

When Should You Get Rental Car Insurance?

Knowledge is power when it comes to rental car insurance. You can definitely save some money by finding out if your personal auto policy automatically extends coverage to rentals of comparable value. And you may also be able to further reduce your liability if something happens by purchasing a CDW.

Before renting, take the time to find out what your auto policy does and does not cover. Do your homework. If there is any doubt, purchase rental car insurance.

It’s always best to have more coverage than you need than to not have coverage when you need it.