Do You Need Rental Car Insurance?

renting a car

After a long, exhausting flight, it’s easy to give in to the rental car insurance pitch. But is it worth it? Photo: Peanutian

It’s a familiar scenario for anyone who has rented a car lately: You’re tired after a long flight, and it’s finally your turn at the rental car counter. The agent is pleasant until it’s time to talk insurance, when he rattles off all the dire potential consequences of declining the company’s coverage. You’re tempted to buy the insurance, get him off your back, and get on with your trip.

Hold up, though: Before you spend a mint on rental car insurance, you’ll want to see whether you’re already covered by your own personal insurance policy and credit card benefits. We’ll break down what rental car insurance covers, whether your own insurance makes it redundant, and a handful of situations where spending the extra money actually could be a smart move.

Rental Car Insurance 101

Overwhelmed by all the fine print on that contract? Do you see a lot of confusing acronyms? Here’s how to decode rental car coverage:

  • Loss/collision damage waiver: The loss damage waiver, or LDW, is sometimes called the collision damage waiver, or CDW. The LDW lets you off the hook for costs if your rental car is stolen, vandalized, or damaged in a crash. This may include loss of use charges, which rental car companies charge for lost profits when they must repair a vehicle.
  • Liability: Sometimes called supplemental liability insurance, or SLI, rental liability insurance covers you if you damage other vehicles or property while driving the rental car. It can also pay medical expenses for others who are hurt in a crash you caused.
  • Personal accident insurance: Personal accident insurance, or PAI, covers medical costs for you and your passengers if you’re hurt in a rental-car crash.
  • Personal effects coverage: Personal effects coverage, or PEC, covers you if any personal items are stolen from or damaged in your rental car.

What does rental car insurance cost?

Rental car insurance costs vary by company and coverage, but one thing’s for sure: It isn’t cheap. You may pay $10 to $30 a day for a loss damage waiver alone. If you opt for supplemental liability, add another $10 or so. Personal accident insurance and personal effects coverage could add another $5 each to your tab.

Add everything together, you could easily pay $40 a day to be fully covered by rental car insurance. Considering that you can often rent an economy car for not much more than that — and sometimes less, if you get a good deal — that kind of daily tab for rental car insurance is a tough pill to swallow.

Are You Already Covered?

Before you plunk down your hard-earned money just to stop an agent from harassing you, think twice. Rental car insurance is often — though not always — redundant if you have other common safeguards in place. Following the steps below can help you determine whether rental car insurance is actually a waste of money for you.

Step 1: Check your regular car insurance policy.

If you aren’t already an insured driver, you can skip to the next step. But if you’re like most people, you may already be covered under the policy that keeps you legally on the road in your day-to-day life. Here’s what you need to find out:

Do you have adequate liability insurance?

Just about everyone will have liability coverage, which is usually required by state law and helps pay for others’ medical costs and property damage when you’re at fault in a crash. This liability insurance typically carries over when you’re driving a rental car, so as long as you’re comfortable with the level of coverage you have, you can usually pass on supplemental liability.

Do you have comprehensive and collision coverage?

Fewer people (especially those with older cars) have comprehensive and collision coverage. Comprehensive coverage insures your car against non-driving-related calamities such as theft, fire, or vandalism. Collision coverage helps pay for damage to your car from a crash, whatever the cause. Many people drop these pricey coverages once it no longer makes sense to make major repairs to an aging, high-mileage vehicle.

If you have comprehensive and collision, you may consider declining the rental company’s loss damage waiver. However, note that there is some gray area here. One of the potential pitfalls is that the rental car company may still charge you for loss of use if you damage one of their vehicles. These fees recover money the company could have made by renting out the vehicle during the repair process. Unfortunately, this is something that is less commonly covered by insurance, and something that is worth asking about if your policy is unclear.

Step 2: Check your health insurance policy.

If you’ve got adequate health insurance, the rental company’s personal accident insurance is probably overkill. This is especially true if you also have medical payments and/or personal injury protection through your regular car insurance.

Step 3: Check your home insurance or renter’s insurance policy.

It’s always worth double-checking, but your home insurance or renter’s insurance policy should cover your belongings wherever you take them, even if they’re stolen from a rental car. That means it’s usually safe to decline the rental company’s personal effects coverage.

Just be sure to note the limits of your personal coverage, which may require extra riders for certain valuables such as expensive jewelry.

Step 4: Check your travel insurance.

If you’ve purchased travel insurance for your trip, see whether car rental collision coverage is included. This kind of coverage typically similar to what the rental company’s loss damage waiver would take care of, sometimes at a lower cost.

You’ll want to check whether the coverage is primary or secondary, however. Primary means you won’t have to involve your own car insurance company in the event of a problem. Secondary means that your own insurance company is on the hook first before the travel insurance coverage kicks in.

Step 5: Check your credit card benefits.

Some level of rental car insurance is a fringe benefit offered by many credit card companies as long as you pay for the rental with your card. If you lost the guide to card benefits that your company sent along with the card, call the company or go online to verify these benefits. If you’re looking for some particularly travel-friendly cards, check out our post on the Best Travel Credit Card for 2015.

Specific benefits will vary by company and card. You may only be covered for a certain period of time, such as 15 or 30 consecutive days, and the amount of collision damage will be capped at different amounts such as $25,000 or $50,000.

Theft and towing costs are commonly covered, but personal property and medical benefits are less common. Some companies will cover loss of use charges, while others will not. It’s common for card companies to exclude certain vehicles, such as very expensive luxury cars or full-size vans, as well as costs incurred in certain countries that are higher-risk for drivers.

Note that most credit card benefits provide only secondary coverage. Like some kinds of travel insurance coverage, these benefits will only fill in the gaps for costs not covered by your personal car insurance. You’ll also usually have to decline the rental car company’s coverage to take advantage of any of these benefits.

When Should I Opt for Rental Car Insurance?

Though we wouldn’t recommend purchasing rental car insurance when you’re already covered, there are some common situations where this pricey add-on might make sense. Here are a few:

  • You don’t have car insurance, or what you have is bare bones: If you don’t have car insurance, you have very high deductibles, or you don’t have comprehensive and collision, you’ll probably want to think about at least opting for the rental company’s loss damage waiver. If you have no car insurance at all, you’ll also need to spring for supplemental liability.
  • You’re traveling for business: If you’re mixing business and pleasure and your company won’t cover rental-car insurance, talk to your own car insurance agent about whether your policy will protect you. If you’re renting a car primarily for business, your personal car insurance may not cover you at all.
  • You’re driving a rental car abroad: Chances are your car insurance won’t cover you most places outside the U.S. While your credit card may still offer some protection, you’ll want to make sure that the country where you’re traveling isn’t specifically excluded from benefits. You’ll often be out of luck in many popular destinations, including Italy, Ireland, and Australia.
  • You’re worried about a rental-car incident affecting your personal insurance rates: It’s one of the most frustrating parts of insurance: File a claim, and your rates could go up. The same holds true if your claim involves a rental car, but in this case, you don’t need to worry if you buy the rental car insurance.
  • You want peace of mind at any cost: For some, the knowledge that they don’t need to worry may be enough to sign on the dotted line for rental car insurance, regardless of the coverage they may already have. If worrying about your rental car will otherwise cast a cloud over your trip, by all means — get the insurance.

Do Your Homework Before You Travel

Moral of the story? You may already be covered, but never assume. Rental car companies make a substantial chunk of change on their insurance policies. That means agents have a big incentive to pressure you at the rental counter — and you’re much more likely to cave if you’re still unsure what coverage your own insurance and credit card benefits provide.

For related insurance advice, check out some of these past posts:

  • Best Travel Insurance for 2015
  • Best Car Insurance Companies of 2015
  • Best Home Insurance for 2015
  • Best Renters Insurance for 2015