Learn About Additional Liability Insurance (ALI)

Car insurance cover
••• Peter Dazeley / Getty Images

If you’re going out of town on a personal trip, you’ll likely need to rent a car while you’re there. With many credit cards, if you book your rental car using your card, you will be insured in the event of an accident. If your card doesn’t offer this coverage, the rental car company will offer you additional insurance. But does this insurance cover every situation you’ll be in?

Unfortunately, no. But there is insurance you can purchase that will cover the gaps: Additional Liability Insurance (ALI), is optional insurance for rental cars that insures all authorized drivers if they injure someone or damage someone else’s vehicle.

This can be important coverage for drivers who do not own a car or a car insurance policy. If you are an insured driver, you are most likely covered automatically by your car insurance. Check with your own auto insurance policy to determine whether additional excess coverage is already provided. 

Purchasing Additional Liability Insurance

You are able to purchase ALI through the rental agency when you rent a vehicle. For example—assume you were vacationing in Arizona and rented a car. While driving to your hotel in your rental, you became distracted and pulled out in front of an oncoming car. Several people were injured in the other car, and extensive damage was done to their vehicle. If you purchased ALI through the car rental company, it would cover the injured party's medical bills and damage to their vehicle.

ALI helped in this respect, but do you need to purchase ALI? It depends. If you are already covered by your car insurance or credit card company, there is no point in spending more for double coverage.

Decide Whether You Need Additional Coverage

You may not need a higher limit of liability coverage on a rental car than you have for your personal car. On one hand, you drive your own car more often, which increases the risk of an accident. On the other, a rental car may handle and drive differently than yours, and you may be in an area you are not familiar with, which can make an accident a greater possibility.

If you are thinking of increasing your liability coverage for a rental car, consider making the change on your personal policy instead. If you are the type that travels a lot, you could purchase umbrella coverage on your own policy, which will offer additional liability coverage.

Generally, your existing insurance policy liability typically extends to a rental, which means you may not need to purchase additional insurance.

Purchasing your state's minimum liability coverage may not cover the costs you incur in an accident. The standard liability limits, also called split limits, are 100,000/300,000. Up to $100,000 pays out per person and up to $300,000 per accident is allowed to pay out with these limits. Higher limits are available and recommended depending on your assets.

Collision Damage Waiver

You might also consider purchasing a Collision Damage Waiver (CDW), which can be the most costly coverage provided to a person renting a car. A CDW can be beneficial to you because you are purchasing an agreement for the company to not hold you responsible for any damages or losses incurred while you a driving the rental.

A CDW may not cover any liability you might incur when driving a rental. It also will not cover any driving behaviors that are risky or illegal. Keep in mind a CDW might be provided through your credit card if you use the card to rent the vehicle or through your own insurance policy. You should check with your card issuing agency to see if this coverage is offered.

A Final Thought

Knowing the type of coverage you need, and already have, when renting a vehicle is important. This knowledge will allow you to make additional insurance purchasing decisions that will be best for your situation.