Do you need Rental Car Insurance?

Picture this. You’ve landed at the airport and are about to embark on your long-awaited vacation, your last step before the fun begins is the rental car desk. You get there, the line is long, and when you finally get to the front of the line, the rental car agent (really a salesperson) tries to sell you on the rental car insurance. You’re tired, your kids are tired and you’re ready to get out of there, so you say yes, hoping to rush through the transaction and get the fun started. As you’re checking out, you probably ask yourself…

“Do I need to purchase rental car insurance…?
Or am I paying double for something I already have with my own car insurance?” 

When renting a car, you have options to make sure you stay covered in the case of an accident or theft. You’ll almost surely have someone trying to sell you on the insurance options from the rental service. While rental car insurance may not be a bad option, it’s good to have all the information before you make a decision.

One of the biggest misconceptions about rental cars is that your personal auto policy has no effect on them. Obviously each policy is different and you should check to be sure, but usually your personal auto policy will give you coverage when driving a rental car for non-business purposes. Be aware of the coverage offered by your existing auto policy, or you may waste money doubling up on the same coverage being offered to you by the rental service.

What does rental car insurance cover?

Rental car agencies sell a Collision Damage Waiver (CDW). It’s not actually an insurance policy, but a waiver saying the rental service can’t have you on the hook for damages or theft. This could be a good option for you, but consider your personal auto policy. If you have collision and comprehensive coverage with your policy, this will typically extend to your rental. Collision and comprehensive coverage is usually optional, but commonly purchased. Your auto coverage would respond the same as the rental company’s CDW, however you would be responsible for paying your deductible in the case of an accident.

Also note, a standard auto policy will NOT cover the loss of rental income or any diminution in value. These are the indirect costs incurred by the rental company if you are involved in an at-fault-accident in their vehicle. Loss of rental income occurs when the vehicle cannot be rented while being repaired and the diminution in value is a result of the resale value of the vehicle being decreasing due to damages and repairs.

The decision should come down to whether you’d rather pay the rental car agency the up-front cost of a CDW, or take the chance of paying your insurance deductible (if your coverage is applicable).

What if you damage someone else’s vehicle?

A CDW will cover damage to your rental car, but what about damage to someone else’s vehicle? While you don’t expect or intend to damage somebody else’s vehicle, you want to be covered in case of an emergency. Similarly to your collision and comprehensive coverage, the liability coverage on your personal auto policy should transfer to the rental car you’re driving. Rental services will usually offer a form of extra liability coverage to protect you from any damage that may be done to someone else’s vehicle. It typically offers a high limit, so if your coverage is limited it may be worth it for you.

What if I don’t have auto insurance?

If you do not have personal auto insurance and are renting a car, you should highly consider purchasing rental car insurance. Rental services also offer personal accident insurance that can cover medical costs for you or your passengers in the case of an accident. This insurance will only be of interest to you if you have no or limited health insurance.

What about coverage from my credit card company?

You may also have the option of using your credit card company as an insurer for your rental car. Most major credit cards offer secondary rental car coverage. This type of coverage steps in after your primary insurance has already paid but it wasn’t enough. Some offer primary, but you’ll need to check with your individual provider to see your options. The other caveat is that you must use that credit card as your form of payment to rent the car in order for coverage to be applicable.

If you’re still searching for rental coverage, there are insurance companies that sell standalone rental car insurance coverage. These policies can be on a day-to-day basis and offer varying amounts of coverage.

If you have existing insurance, it very well may give you all the coverage you need while renting a car, but it’s still best to know your options, as well as your risk.