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What are the different kinds of rental auto insurance?

Key takeaways...
  • You need adequate insurance coverage when you rent a car
  • Rental car companies typically offer four different policies
  • Personal accident insurance covers medical expenses for anyone in the rental car

Rental car insurance can be a bit confusing. Most people realize they need coverage when they are driving a rental car, but are unsure if they have it or not.

The National Association of Insurance Commissioners says that more than 40 percent of car renters are confused about coverage.

There are two basic options: buy from the rental car company or use outside insurance. Many people already have insurance that will cover rentals, while others will need to buy some at the rental counter.

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Collision Damage Waiver and Loss Damage Waiver

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Rental car companies typically offer four different policies. Although they sometimes try to combine them, you can buy each one separately, as reported by USA Today. Sometimes you might need to purchase one but not the others.

Perhaps the most important thing from the rental car company’s point of view is the collision damage waiver (CDW), sometimes known as a loss damage waiver (LDW).

This is called a waiver. There’s no deductible you have to meet.

When you purchase a CDW, the rental car company waives its right to hold you responsible for any damages done to the rental while it is rented to you.

Usually, this is an optional add-on to the rental agreement. If you decline it, you are accepting full responsibility for any repairs the rental vehicle needs if you cause an accident in it, or if it is stolen.

Sometimes, you will already have coverage for this through other policies. Check with your personal auto insurance company.

If you have comprehensive and collision on your personal cars, your policy might extend to a rental. Your credit card might also cover it.

However, Travel Sense has a great tip: If you need to buy a CDW, look to see if there is another car they offer that has the CDW/LDW included in the price.

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Supplemental Liability Insurance

All states require drivers to have liability insurance in nearly all situations. Rental cars aren’t exempt from this.

To fulfill this requirement, rental companies offer a liability policy that covers damages to other cars if you are in an accident in the rental car.

This policy has different levels that can go up to as high as a million dollars. The rates for this aren’t as high as the CDW; usually less than $10 a day.

However, most of the time your personal auto insurance policy will extend your liability coverage to your rental car.

If it does, you could decline this part of the company’s insurance.

Be sure that your personal insurance is enough coverage. Your personal policy will only extend the amount you already have to a rental car.

If your policy provides too little coverage, consider adding the additional liability from the counter.

Personal Accident Insurance

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Personal accident insurance covers medical expenses for anyone in the rental car. While this isn’t as expensive as liability or CDW, this is a policy that the vast majority of renters can safely decline, as they are likely already covered elsewhere.

If you have personal injury protection (PIP) or medical payments, also known as med pay, on your auto coverage at home, you’re probably already covered for this..

If you have health insurance, you are also probably covered for yourself and any family members in the car.

If you are traveling with non-family members, your health insurance won’t cover them, while you PIP or med pay probably will.

You might also be protected by your credit card.

Many credit cards, especially travel cards carry travel accident insurance.

This policy covers your medical bills when you are traveling if you have paid for the travel with that credit card.

Before you take a trip, call your credit card company to ask how you become eligible for this. Some cards will only require that you pay for the rental with the card.

Others may require that you pay for all major traveling expenses with it, such airfare, rental car, and hotel.

Personal Effects Coverage

This final common insurance policy offered at rental counters all over the country covers your personal items in the rental car. If your rental car is stolen or broken into, this policy pays for items to be replaced.

This policy costs about the same as the personal accident insurance per day.

However, this policy is almost always unnecessary. You usually have coverage for this in one of three other places.

Your personal auto insurance might cover personal items. Give your auto insurance company a call first to make sure. Don’t just assume that it does.

If your auto insurance doesn’t, then your homeowner’s or renter’s insurance probably does.

The personal effects portion of a homeowner’s policy usually extends to all of your personal effects, no matter where they are, whether in a storage unit or a car.

If your policy doesn’t cover this, ask if you can add a rider to the policy that will cover items in a car, including a rental car. Often you can add this for just a few dollars a year, which is far cheaper than paying the rental car fee.

Finally, some credit cards will cover lost personal items while you are traveling. Just as with the personal accident insurance, you need to verify with the credit card company how you can be eligible for this.

Personal Insurance and Credit Cards

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The first four policies are all ones offered by the rental car companies. However,  many of them can be declined if you have the same type of coverage from another source.

For many people, that other source is their personal auto insurance combined with credit card benefits.

For most people, their personal auto insurance will cover liability on the rental.

If they also have comp and collision, as well PIP, on their personal policies, then those extend to the rental car. As mentioned previously, the rental car will have the same level of protection as the personal cars.

You’ll have to reserve and pay for the rental with the card, but there’s usually nothing else you have to do. See which credit card has the best rental car insurance in this article from The Consumerist.

It’s important to remember that the credit card rental policy is a secondary policy to your personal auto policy. In other words, it kicks in when your auto insurance is paid out. It covers what the auto insurance doesn’t.

As an example, if you cause an accident in the rental car after declining the rental company’s insurance, your personal policy will pay for the other car’s repairs and the other driver’s ER visit.

Keep in mind that credit card rental benefits usually have restrictions as well. Sometimes they won’t cover certain types of cars. They also won’t always cover long-term leases. Some cards won’t cover rentals overseas.

Give the credit card provider a call before you rent to find out exactly what their requirements and restrictions are before you travel.

Non-Owner’s Insurance

If you travel frequently but don’t have personal auto insurance for whatever reason, consider purchasing a non-owner insurance policy.

This type of insurance covers you whenever you borrow or rent a vehicle. The nice thing about this type of policy is that is usually very inexpensive, sometimes as low as $200 a year.

Since this policy acts as the primary car insurance, this also allows you to take advantage of the credit card perks that are secondary types of insurance.

When it comes to rental car insurance, the best way to cut down on confusion and on the cost is to call your car insurance company and credit card company before you book your travel reservations.

This allows you to know ahead of time exactly what kind of coverage you have before you need to decide whether to buy additional policies from the rental car company.

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