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What is rental car insurance?

How to decide on protection for a borrowed ride.

Chances are if you’ve ever rented a set of wheels, you’ve been met with that impossible decision: to buy rental car insurance or not to buy rental car insurance?

Rental car insurance is insurance for your rental car. There are several options to ensure you’re covered when you rent a car. You can purchase a variety of car rental insurance products directly from the rental car company, and a few products are available through third parties. Other ways to get rental car insurance include through your own auto insurance policy or through some credit cards. But do you have the right combo in place? What do you need to sign up for?

Read on to find out:

How rental car insurance works

Most car rental companies break up coverage at the counter into four parts:

1. Liability insurance (LI). 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 liability insurance they’re selling is actually supplemental liability insurance (SLI). Car rental SLI costs about $8 to $12 a day.

2. Loss damage waiver (LDW) or collision damage waiver (CDW). This 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. (And they’ll charge it even if they have a whole fleet of cars sitting in a lot.) Loss damage waivers are the budget-breaker when it comes to car rental insurance, costing around $20 to $30 a day. If you have a current auto insurance policy, your own policy likely covers damage to rental cars, but may not cover loss of use fees. Some credit cards offer this coverage as well.

3. Personal accident insurance. Covers any medical expenses you or your passengers incur as the result of a rental car crash. It costs around $3 a day. If you have health insurance, you can usually skip this one.

4. Personal effects coverage. Covers any of your belongings, should they get stolen from your rental car. It costs around $2 a day. If you have renters insurance or homeowners insurance, you can skip this one, too.

How much does rental car insurance cost?

Just like standard car insurance the cost of rental car insurance can vary by state and by company, but here are some average ranges for each component:

1. Supplemental Liability insurance (SLI): Approx. $8 to $12 a day

2. Loss damage waiver (LDW) or collision damage waiver (CDW): Approx. $20 to $30 per day, if purchased from the rental car company (some third-party insurers, like Allianz and Traveler, offer collision insurance for less than $10 per day)

3. Personal accident insurance: Approx $3 per day

4. Personal effects coverage: Approx. $2 per day

For full coverage from the rental car company, that’s $33 to $47 per day.

Do you need rental car insurance?

This depends on how you define “need.” Are you required by law to get it? No. Car insurance companies are required to cover their state’s minimum liability insurance, so that takes care of any legal requirements. (We’re making this clear, because sometimes an employee at a car rental counter may tell you otherwise — you aren’t legally required to do anything.)

But if you don’t have other insurances or products set up to replace it, then yes, you need to purchase rental car insurance. The risks are too great: without the right combination of coverage, you could be on the hook for thousands or hundreds of thousands of dollars if anything happened.

There are only two ways to ensure you’re totally covered when you drive a rental car:

  • Buy the suite of car rental insurance products from the car rental company.
  • Talk to you car insurance company and credit card companies to find out what coverage you may already have, and if needed, supplement that coverage with additional products from the car rental company.

Sorry! You have to get on the phone. Here’s who to call, and what to ask:

1. If you have car insurance, 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 with the rental company. 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.

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. (If you have a super high-deductible health plan, for example, it may be worth it to spring for the personal accident coverage.) Most renters/homeowners policies cover your stuff when it’s outside your home, but it’s a good idea to confirm, especially if you’ll be travelling with high-value property.

3. Ask the rental car company a few questions. The big question is whether they charge loss of use fees and, if so, how much that’ll run you per day. Even if your car insurance covers comprehensive and collision on your rental, it likely won’t cover those charges, so it’s worth asking just so you can know your risk. 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. Many credit cards offer supplemental rental car insurance, so find out if yours does, and how to activate it. Some just require you to pay for the booking with the card, others (like American Express) have you pay fee (approx. $25) each time you rent a car to opt into coverage. Make sure you study what your card covers carefully — 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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How to decide how much rental car insurance to buy

Once you’ve done your homework about what coverage you do or don’t have through existing policies or from your credit card, you may need to buy some combination of car rental insurance

Choose which statements apply to you to add up your coverage needs (more than one statement can apply):

  • If you have car insurance but you don’t have comprehensive or collision coverage: If you don’t have comprehensive and collision coverage, you should either purchase it through a third party or pay for the collision damage waiver (CDW) from the car rental company.

  • If you don’t have homeowners or renters insurance: You may need personal effects coverage (or you may decide that if your duffel bag of beach clothes is stolen out of your rental car, you’re okay with it being a total loss).

  • If you don’t have health insurance: You may want personal accident insurance, as motor vehicle accidents are one of the most common causes of injuries in the U.S., according to the Healthcare Cost and Utilization Project (HCUP) and accident insurance would pay your medical bills.

  • If you don’t like risk: You should the buy collision damage waiver (CDW), as it’s the only way to ensure you won’t pay the rental company any damages in case of an accident. (Even if your credit card covers loss of use, anecdotally we’ve heard that many rental car companies won’t provide them with the necessary documentation before the claim closes, leaving you to foot the bill.) If you really don’t like risk, you should buy the supplemental liability coverage (SLI), as the limits will be way higher than the limits on your personal auto policy.

  • If you’re renting a car overseas: Your U.S. car insurance policy probably won’t cover you outside the country (Canada is often an exception — call and check). Your credit card might offer collision and comprehensive coverage, depending on the country. Ask before you go abroad! If you’re not covered, you should probably accept all the insurance offered (sorry). And you should opt-in to liability insurance, too — it usually doesn’t follow you abroad.

  • If you don’t have auto insurance: Without your own auto insurance policy, you aren’t covered for damages to a vehicle you’re driving, so you need to get comprehensive and collision coverage, either from the car rental company as a collision damage waiver (CDW), from a third party, or through a credit card.

You also will need to purchase supplemental liability coverage (SLI) from the rental car company. (If you don’t have your own car insurance policy, the traditional adage that “rental car insurance is a scam” isn’t true ‚ you need that liability coverage!)

Here’s why: The state-mandated liability insurance minimums are so low as to be basically useless if you were to actually get into an accident and were sued. A typical state minimum is $25,000 — auto insurance companies recommend a minimum of $100,000. The rental car company’s SLI overs coverage between $1 million and $2 million.

Without your own car insurance policy, it’s very unlikely you have any liability coverage while driving a vehicle. (Your homeowners and renters insurance policies explicitly state that accidents from vehicles are excluded.) There are three possible exceptions, but if you haven’t sought these out specifically, you definitely don’t have them, because they are rare and (often) expensive (more below on those).

Alternative liability insurance options if you don’t have car insurance

If you want to be covered for vehicular liability but don’t own a car of your own, there are a few options available besides buying the supplemental liability coverage (SLI) from the car rental company, if you’ve planned ahead:

  • Non-owner car insurance: If you rent cars or drive other people’s cars often but don’t have your own car, non-owner car insurance is an insurance policy designed to cover your liability while driving. It’s not cheap — the average is $900, and in some places (like New York) it can be more like $1,700. But it may be worth it, if that math works for you.

  • Non-owned car insurance rider: This is a very rare rider that some companies allow you to add to your renters insurance or homeowners insurance policy. (We could find just one company that offered it — The Hanover Group — but there may be more.) The rider extends your liability coverage to apply when you’re driving. It’s worth asking your renters or homeowners insurance company about this rider, as we’ve seen it quoted for as little as a few extra dollars per month on top of your regular policy.

  • Personal umbrella policy: Some insurance companies allow you to purchase a personal umbrella policy on top of a renters insurance or homeowners insurance policy. Personal umbrella policies are generally available for people to protect wealth above their liability coverage limits, but they’re also a way for non-car-owners to be covered for vehicle liability. Not all insurance companies offer umbrella policies.

Disclaimer: Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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