If you have ever rented a car, you have been offered insurance coverages by the rental car company.
This optional coverage is presented in a way that makes you afraid to decline it, but you think you remember hearing that it is a waste of money. And it’s not cheap. These coverages can cost more than the base cost of the rental itself!
So, what’s the straight skinny: do you need to purchase rental car insurance?
The short answer is that if you have solid car insurance, health insurance and homeowner’s/renter’s insurance, and if you are renting for pleasure (not business) in the United States, you probably don’t need the optional insurance offered by the car rental company.
To find out whether this general rule applies to you or whether your particular situation makes rental car insurance a good idea, read on.
Coverages Offered By Car Rental Companies – Do You Need Them?
Car rental companies normally offer some, or all, of 4 types of insurance.
However, you may already have adequate insurance to cover the risks. If you do, buying the optional insurance is a waste of money.
- Collision Damage Waiver (CDW).
CDW, which is also called Loss Damage Waiver (LDW), relieves you of financial responsibility for a rental vehicle damaged by an accident, vandalism or theft. It usually costs between $9 and $20 per day.
If you have collision and comprehensive insurance coverage on your car insurance policy, it will cover these losses, subject to the policy limit and a deductible amount that you chose when you purchased the coverages.
Collision coverage applies to damage to your vehicle caused by a collision. Comprehensive coverage applies to damage caused by other than a collision, such as by fire, theft or vandalism.
Check your policy and, if necessary, contact your insurance agent to be sure you have collision and comprehensive coverages. Many people do not have comprehensive coverage if they own an older vehicle since it is not worth the cost.
- Supplemental Liability Insurance (SLI)
SLI provides excess liability coverage, perhaps up to $1 million. It usually costs between $7 and $9 per day.
Liability insurance pays for injuries to another person or damage to another person’s property that you cause. This coverage (or an equivalent) is required by every state.
In addition to you already having liability coverage on your personal auto policy, car rental companies are required to provide at least the state minimum amount of liability insurance.
However, state minimums can be grossly inadequate to protect you and adequately compensate for accidents you cause. Therefore, check the amount of liability coverage you have. It should be at least $100,000, in my opinion.
- Personal Accident Insurance (PAI)
PAI covers you and all passengers in your vehicle for any medical expenses. It usually costs between $3 and $5 per day.
PAI is not necessary if you have a personal health insurance policy that applies. In addition, if you have PIP car insurance or medical payments car insurance, these also cover medical bills, up to your policy limit.
- Personal Effects Coverage (PEC)
PEC provides coverage for theft of, or damage to, personal items inside the rental car. It usually costs between $2 and $5 per day.
Normally, your homeowner’s insurance or renter’s insurance covers these losses, or it can be extended to cover these losses while you are traveling.
Rental Car Insurance Provided By Your Credit Card
In addition to your personal car insurance (and health and homeowner’s/renter’s insurances), there may be another way to pay for losses you cause or suffer while driving a rental car.
As an inducement for you to use their card when you rent a car, many major credit card companies include CDW coverage if you use their card to pay for the rental. Among other things, this CDW pays the deductible on your personal auto insurance.
However, credit card CDW usually comes with restrictions and exclusions. And there may also be a charge for it.
Be sure to check with your credit card company to learn the specifics of the coverage.
One thing to look for is whether your credit card coverage includes “loss of use,” depreciation and administrative fees that car rental companies claim. And towing costs. Some will, and some won’t. For example, Visa and American Express cover towing and rental car company fees; but, as of this writing, the others don’t.
Also investigate the restrictions that apply. Some credit card companies exclude coverage for certain types of vehicles, including sports cars, luxury cars, motor homes, motorcycles and even passenger vans. There may also be a provision that the coverage only applies to the cardholder so that a loss suffered while someone else is at the wheel may not be covered.
Steps To Follow To Decide Whether To Purchase Rental Car Insurance
Before you arrive at the rental car counter, follow this procedure to decide whether to buy the optional insurance offered by car rental companies.
- Check your car insurance policy. If necessary, speak to your agent. Be sure your policy applies to rental cars. Normally, both your coverages and deductibles apply when you rent. However, if you are renting a car in a foreign country (except Canada), your car insurance probably does not apply.
Then check your comprehensive and collision coverages. Make sure you have adequate coverage for damage or total loss of an expensive, new rental car.
Check the amount of your deductibles. You may have chosen a high deductibles on your personal policy – to reduce the cost of your insurance – but the risk is greater when dealing with an expensive, new rental car. Do you still want to risk the high deductibles?
- Check your health insurance. Make sure it applies to injuries suffered in the area where you are renting a car.
- Check your homeowner’s/renter’s insurance. Make sure it covers loss of property in the rental car. Alternatively, find out whether it can it be extended to cover these losses.
- Determine whether your credit card company provides CDW coverage if you use their card. If they do, find out what they cover and what they don’t cover, such as “loss of use” claims. Find out if there is a charge for this coverage.
- Check your company’s travel policy if you are traveling on company business. In most cases, it will provide full coverage.
When You Should Buy Rental Car Insurance
When all is said and done, these are the situations when it is a good idea to get the rental car company insurance:
- You are not insured.
- You do not have collision or comprehensive coverage on your personal automobile policy.
- You don’t want to risk the high deductibles (which apply to collision and comprehensive coverage) on your personal auto policy.
- You are renting in a foreign country.
- You are renting for a business purpose, not a personal one, so your personal insurance does not apply. (However, your business may have coverage that applies.)
- You do not want to risk the high “loss of use” and other administrative charges that car rental companies charge while their vehicle is being repaired, and you do not have credit card coverage for this loss.
Check out your existing coverages and then decide what makes the most sense for you.
FINAL TIP: If you purchase the car rental company insurance, it will probably only cover you when the person who rented the car is driving. If another person is behind the wheel when a loss occurs, the insurance will not cover the loss.