Rental Car Insurance

How to decide on protection for a borrowed ride.

What Is Rental Car Insurance?

Rental car insurance — or is it car rental insurance? — is … well, it’s insurance for your rental car. Coverage is most commonly purchased from the rental car company itself when you pick up your temporary ride, but you can buy a standalone rental car insurance policy from some third-party insurers, too. And, in fact, those policies often cost less or are at least easier to research in advance.

How Much Does Car Rental Insurance Cost?

Just like standard car insurance, the cost of rental car insurance varies by state and the car in question. But it generally runs a driver between $30 to $40 a day. (If you’re vacationing in a Benz, expect to pay more.)

How Rental Car Insurance Works

Per the Insurance Information Institute, most car rental companies break up coverage at the counter into four purchasable parts.

  1. Liability insurance (LI), which covers damages you cause to someone else’s car and/or its passengers in an accident. Rental car companies are required by law to carry a state’s minimum amount of liability insurance coverage on their cars, so the LI they’re selling is actually SLI — supplemental liability insurance. Just so you know, state liability insurance minimums are pretty low. You can find go here to find out how much auto insurance is required in all 50 states. Car rental SLI costs about $8 to $12 a day.
  2. Loss damage waiver (LDW), also known as the collision damage waiver (CDW), isn’t so much insurance as it is a waiver of your liability, should the rental car get damaged or stolen. Loss damage waivers also sometimes cover towing or administrative fees, along with what’s known as “loss of use” fees. That’s what some rental car companies charge to make up for the revenue they lose on a rental car that’s in the shop. Loss damage waivers are the budget-breaker when it comes to car rental insurance, costing around $20 to $30 a day. They’re also the coverage a driver most commonly needs.
  3. Personal accident insurance, which covers any medical expenses you or your passengers incur as the result of a rental car crash. It costs around $3 a day.
  4. Personal effects coverage, which covers any of your belongings, should they get stolen from your rental car. It costs around $2 a day.

Do I Need Rental Car Insurance?

So here’s the thing: Given companies must cover their state’s minimum liability insurance, car rental insurance is technically optional. We’re making this clear, because someone at the car rental counter might tell you otherwise in an attempt to make a commission off the sale. Health insurance and renters/homeowners insurance often negate the need for personal accident insurance and personal effects coverage, respectively. If you have car insurance or even non-owner car insurance already, there’s a chance at least SLI is redundant, too.

When Rental Car Insurance Is Necessary

That doesn’t mean rental car insurance is never called for. As we mentioned earlier, state liability minimums provide very minimal coverage (naturally), so if you don’t have car insurance or your own liability insurance is lacking, you’re going to want some SLI. And, if you don’t have collision and comprehensive coverage, you’ll probably want to opt for a loss damage waiver.

In fact, for most people, to LDW or not to LDW is the big question. That’s because not all standard car insurance policies cover towing, administrative or “loss of use” fees. Plus, if you’re traveling overseas, car rental insurance is likely in order. Most standard car insurance policies in the U.S. don’t cover you if you go abroad. Unless you’re headed to Canada. Oh, Canada.

How Do I Know How Much Rental Car Insurance I Need?

Simply put, do your homework before your trip. Here’s how to figure out if you need rental car insurance — and, if so, what type of coverage to buy.

  1. Talk to your car insurance company. It can confirm if your policy extends to rental cars (most will) and tell you if it covers all those bothersome fees the LDW would otherwise waive (most won’t). Your car insurance company can also talk you through your liability insurance and collision/comprehensive coverage limits, so you can gauge whether your existing coverage suffices. Also, ask about your deductible. You’ll have to pay this if you get into an accident whether the car’s a rental or not, so if you have a high-deductible plan, you might want to just go ahead and cover that rental.
  2. Review your health insurance or renters/homeowners insurance policies. That’ll help you determine if you need personal accident insurance or personal effects coverage. Remember, most renters/homeowners policies cover your stuff when it’s outside your abode. FYI, some car insurance policies also tout personal injury protection, or PIP, insurance, which also helps pay for injuries you and your passengers sustain in an accident.
  3. Ask the rental car company a few questions, beyond the coverage limits, of course. The big Q is whether they charge loss of use fees and, if so, how much that’ll run you per day, because, again, most car insurance policies won’t cover those charges. You’ll also want to check if there’s anything that renders the loss damage waiver null and void. For instance, some car rental insurance policies waive the waiver if you let an unauthorized driver take the wheel or you drive drunk. (Quick public service assignment: Don’t drive drunk.)
  4. Call your credit card issuer. Seriously. Quite a few credit cards tout supplemental rental car insurance that’ll kick in if you rent the ride with that piece of plastic. But this coverage is all over the map in terms of limits — and most benefits only kick in if you decline the loss damage waiver and exhaust your primary car insurance coverage. In other words, you’ll want to talk to your issuer before simply foregoing car rental insurance because you think a credit card has your covered.

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