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Rental Car Insurance: To Buy or Not To Buy?


It’s vacation season, and time to take an exciting trip somewhere, right? Maybe you’ll take a road trip down to the outer banks or up to New England. Or maybe you’ve spent all winter planning that trip of a lifetime driving through France and Germany or hiking the Dolomites. But whatever you’re planning to do, it’s likely to involve a car rental.

We’ve all been there. You’re at the rental desk and you have to make a snap decision whether or not to buy the supplemental car insurance – which could cost anywhere up to $45 a day. It’s a tricky decision, given the fact that you may already be covered through your existing car insurance or one of your credit cards.

First, let’s look at the tricky terms and your choices:

  • Loss/collision damage waiver:Called LDW or CDW. This covers you for costs if your rental car is damaged in a crash, stolen, or vandalized. This may or may not include “Loss-of-use” charges, which rental car companies charge for lost profits while the vehicle is being repaired.
  • Liability:Often called supplemental liability insurance, or SLI. This covers you if you damage other vehicles or property while you’re driving. It can also pay medical expenses for others who are hurt in a crash if you are at fault.
  • Personal accident insurance:Called PAI, covers medical costs for you and your passengers if you’re hurt in a crash.
  • Personal effects coverage:Called PEC, protects your personal items if they are stolen from or damaged in your car.

Check your regular auto insurance policy first

You most likely have adequate liability coverage through your regular car insurance since most states require it, and this typically carries over when you’re driving a rental car. This pays for others’ medical costs and property damage when you’re at fault in an accident. So check your policy. If you’re happy with the level of coverage you already have, you can pass on the liability insurance.

Not as many people have adequate comprehensive and collision coverage, since those coverages are pricy and may not make sense, especially if you have an older, high-mileage vehicle. Remember, comprehensive covers non-driver things such as theft or vandalism, while collision covers damage to your vehicle.

So if you have decent comprehensive and collision coverage on your personal auto insurance policy, you might opt out of buying the car rental’s loss/collision damage waiver. But beware – if there is an accident, the car rental company may charge you for Loss-of-use if you damage the car. Remember? That’s the fee imposed by the rental car company on the customer to cover its lost income while the vehicle is out of commission from an accident–even when the accident may not have been the customer’s fault.  And unless you live in a state where Loss-of-use coverage is automatically covered by a renter’s personal auto policy (those being Alaska, Connecticut, Louisiana, Minnesota, New York, North Dakota, Rhode Island and Texas) your personal auto insurance most likely will not cover Loss-of-use and you may be liable for these charges in the event of an accident.

The only way around this is to either (1.) consult with your agent to see if you are covered for this or (2.) actively seek out rental companies who do not charge for Loss-of-use. Of course you could also rent the vehicle with a credit card that covers Loss-of-use like American Express, MasterCard, and Visa. Discover unfortunately excludes Loss-of-use.

Check your health insurance policy

If you have adequate health insurance, the rental company’s personal accident insurance is probably not necessary, especially if you also have medical payments and/or personal injury protection through your regular car insurance.

Check your home insurance or renter’s insurance policy

It’s always worth looking into, but your home insurance or renter’s insurance policy may 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.

Check your credit card benefits

Rental car insurance is a benefit offered by many credit card companies as long as you pay for the rental with your card. Call your credit card company or go online to verify these benefits. 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 usually covered, but personal property and medical benefits are not always covered. And as I previously stated, American Express, Visa and Master card all have plans that cover Loss-of-use charges. 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 some 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. Usually you’ll have to decline the rental car company’s coverage to take advantage of any of these benefits.

When should I buy the rental car insurance?

Buying rental car insurance when you already have adequate coverage is just overkill, but there are situations where you probably have to bite the bullet and buy it.

You don’t have car insurance, or what you have is bare bones: If you don’t have insurance, or you have high deductibles, or if you don’t have adequate comprehensive and collision, you’ll probably want to opt for the loss/damage waver

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 North America, but renting with the right credit card will. Make sure that the country where you’re traveling isn’t specifically excluded from benefits. Some popular destinations, including Italy, Ireland, and Australia may not be covered by your credit card coverage.

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.

The Moral of the Story?

Car rental companies make a substantial amount of profit from selling supplemental insurance, so it’s a big incentive for them to pressure you when you’re at the rental counter. So do your homework before you travel. Never assume that you’re already covered with your personal insurance. Read through your insurance policies and/or call your agent to ask questions. Or if you’re traveling abroad, read your credit card agreement and/or call their customer service representative to find out what all can be covered by renting with their card.