Standing at the rental car counter at the airport, the agent asks you the dreaded question about insurance coverages. If you accept all coverages, your $49-per-day rental suddenly costs $100 per day. But how much protection do rental car coverages offer, and do you really need them?
Buying rental car insurance has some advantages, but if you have auto insurance for your personal vehicle at home, you may already have all the coverage you need.
What Is Car Rental Insurance?
The insurance coverage you purchase from a rental car agency provides many of the same types of protections as the auto insurance you have for your personal vehicle, but the terminology differs.
Typically, the rental agency will offer the following selection of coverages:
Liability insurance: Rental car liability insurance provides the same types of protections as liability coverage for a personal automobile. Liability coverage pays to repair another driver’s automobile, and it covers their medical expenses (and those of their passengers) when you’re at fault for an accident.
Most states require all drivers to carry minimum amounts of liability insurance. For example, California requires owners of private passenger vehicles to purchase $15,000 in bodily injury coverage to pay for one person’s injuries, $30,000 in bodily injury liability insurance to cover the injuries of more than one person, and $5,000 in property damage liability coverage.
Most state laws require rental car companies to offer their customers liability coverages that meet the legal requirements of the state in which you rent a vehicle, with California being an exception.
Loss damage waiver (LDW; sometimes called a collision damage waiver, or CDW): LDW coverage waives your responsibility if the rental car is damaged or stolen while in your possession. It may also include loss of use coverage, which reimburses you if the vehicle is rendered inoperable during the contract period, as well as towing coverage. Like collision coverage on a personal car insurance policy, LDW coverage has exclusions, so it’s important to read and understand the fine print. For instance, LDW may not cover the vehicle if you cause an accident while intoxicated or speeding.
Personal accident insurance: Like the personal injury protection (PIP) or medical payments coverages of a personal auto insurance policy, personal accident insurance helps pay for the medical expenses of you and your passengers, regardless of who is at fault for an accident.
Personal effects coverage: When a thief steals your personal belongings from your rental car, personal effects coverage can help pay to replace them.
How Much Does Rental Car Coverage Cost?
Purchasing insurance at the rental car counter can significantly increase the overall cost of your rental. Washington DC's Department of Insurance, Security, and Banking spells out typical cost ranges for rental car coverages:
- Loss damage waiver: $10 to $20 per day
- Liability insurance: $7 to $14 per day
- Personal accident insurance: $1 to $5 per day
- Personal effects coverage: $2 to $5 per day
What Does Your Personal Auto Policy Cover?
If you have auto insurance for a personal vehicle, your coverages may extend to a rental car. But before you skip the coverages offered by a rental car company, you need to understand the terms of your car insurance policy and consider the limits of each coverage, as well as your deductible.
If you have collision coverage for your personal vehicle, you may not need to purchase LDW for a rental car. However, bear in mind that if you total the rental car, your insurer will only pay up to your policy’s limit. If you’re renting an expensive vehicle that would cost more to replace than your collision limit—like if you’re renting a sports car on vacation—consider purchasing LDW coverage. Also, your personal collision coverage may only cover a rental car for personal use, not business travel.
Although the liability coverages you carry on your personal vehicle may also cover a rental car, you need to have enough coverage to meet the legal requirements in the state where you’re renting the vehicle. For example, if you live in California and only carry the mandated minimum liability coverages, you wouldn’t meet the state requirements in Oregon, which requires higher limits for bodily injury and personal property liability coverages.
Comprehensive coverage can help replace your car if it’s stolen or sustains non-collision damage, like vandalism. But many automobile owners drop comprehensive coverage after they make their last car payment. Since LDW coverage waives your responsibility if your rental car is stolen or damaged, it’s a good idea to purchase it if you don’t carry comprehensive coverage for your personal vehicle.
Medical Payments Coverage and Personal Injury Protection
If your auto insurance policy includes medical payments coverage or personal injury protection (PIP), you may not need to purchase personal accident insurance when you rent a car. Again, review your policy carefully to find out if its coverages extend to a rental car. The PIP or medical payments coverage will pay up to a limit, which may vary based on state insurance laws and coverage plans. For instance, PIP may pay expenses such as attendant care and rehabilitation, which some health plans don’t cover, or pay up to a certain limit, at which time your health insurance would kick in to cover additional costs.
Another reason to think twice about buying personal accident insurance offered by rental car companies is that it only provides a modest benefit. For example, Alamo’s coverage pays up to $2,500 in medical expenses for the renter and passengers.
What Does Your Health Insurance Cover?
Unless it’s specifically excluded, your health insurance will cover medical expenses if you sustain an injury while driving a rental car.
Worried your health insurance will charge an outrageous penalty if you have to go to the emergency room at an out-of-network hospital? Under the Affordable Care Act, health insurance companies can’t charge higher coinsurance or copayments if you seek emergency care from an out-of-network hospital.
If you have medical payments or PIP coverage on your personal automobile, that coverage plus a health insurance policy may provide all the protection you need, even when you rent a car away from home.
What Does Your Home, Condo, or Renters Insurance Cover?
Some condo, home, and renters insurance policies cover personal property stolen from a vehicle. If you have one of these policies, find out if it covers your belongings when they’re in a vehicle and away from home. However, if you rent a car while traveling on business, your home or renters policy may not cover your personal or business property. In that case, you probably need to purchase personal effects coverage.
If you’re not sure, it’s worth calling your insurance agent to find out how your personal auto insurance policy can protect a rented vehicle. If your policy has endorsements such as roadside assistance, find out if the coverage will apply to your rental. Also, before renting a car, search the rental car agency’s website to find its terms and conditions, which may include state-specific coverage information and coverage levels.
Which Coverage Options Might Be Worth It?
Even if your personal car insurance policy covers a rental vehicle, you may decide to purchase some or all coverages from the rental agency. Consider a few factors before declining rental car insurance coverages.
- Purchasing coverage from the rental car company means you won’t have to worry about filing a claim with your provider if you have an accident.
- Rental car coverage may not have a deductible. If your personal policy has a high deductible, it might be worth paying a few dollars more for rental car insurance.
- If you don’t carry collision and comprehensive coverages, you need the protection of the loss damage waiver in case the rental car is stolen or sustains damage.
- Driving an unfamiliar automobile can increase your risk of having a traffic accident, especially if you’re exploring a place you’ve never visited. Even if your personal auto policy provides adequate coverage, purchasing rental car liability insurance adds to your protection.
- When renting a car in another country, it’s often wise to purchase rental car insurance, because laws in some countries prohibit you from leaving until you pay for damages to another person’s property.
- When traveling for business, your personal car insurance policy won’t likely cover a rental car and your homeowner's policy may not cover personal property stolen from your rental. If you’re on a business trip, it may be worth buying rental car insurance.
What Does Your Credit Card Car Rental Insurance Cover?
Some credit card companies offer limited rental car coverage, but you must closely follow the rules in the fine print. Typically, you must use the credit card to reserve and pay for your rental vehicle, and the cardholder must be listed as the primary driver on the rental contract.
Rental car benefits offered by credit cards typically only provide the coverage offered by the LDW. For instance, Visa cards cover physical damage to, theft of, and vandalism of the vehicle, but they don’t cover injuries, liability, or personal property losses.
Usually, credit card companies offer secondary coverage. For instance, if you have auto insurance, Visa will cover costs such as your deductible, loss-of-use charges, and towing expenses, but you’ll have to file a claim with your insurance company to pay for damage to the rental car. However, if you decline coverage offered by the rental car agency and don’t have a personal car insurance policy, Visa will cover damages to and theft of the automobile, too.
Be aware that coverage offered by credit card companies comes with loads of restrictions. The coverage only applies when renting certain types of vehicles, and it may place limits on the duration of your rental agreement.
Alternatives to Car Rental Insurance
If you don’t own a vehicle but frequently rent cars, you might consider purchasing a non-owner insurance policy. This type of policy covers the named policyholder and provides protection regardless of the vehicle you drive. Non-owner policies typically include coverage required by law, like bodily injury and property damage liability, PIP, and uninsured and underinsured motorist coverages. But non-owner policies don’t cover damage to the vehicle you rent, so you’ll still need to purchase LDW coverage from the rental agency.
Insurance for Car Sharing Services
Car sharing companies often include a certain amount of auto insurance coverage in the rental fee, but it may not provide enough protection if you have an accident. For example, Zipcar includes a standard protection plan in its memberships at no extra cost. But if you have an accident, Zipcar charges you a damage fee of $1,000. For $5 per month or $50 per year, Zipcar members can purchase Plus Protection, which lowers the damage fee to $375, or Premium Protection, which costs $9 per month or $79 per year and reduces the damage fee to $0. These limited fees only apply if the member complies with the membership terms and agreements. If you don’t follow all the rules, Zipcar may hold you responsible for paying all damages.
- Insurance coverages offered by rental car companies can add significant costs to the price you pay. However, depending on your other coverage, these costs can be worthwhile.
- Personal auto insurance policies often extend coverage to rental vehicles, but likely not if you’re traveling on business. You’ll also want to consider whether you have a high deductible on your personal policy.
- If you rely on your personal car insurance policy to cover a rental car, it must provide the required coverages and meet coverage limits in the state in which you rent the vehicle.
- Some credit card benefits include rental car coverage, but it’s often limited to damage to and theft of the rented vehicle.
- The bottom line: Read the fine print of any coverage you plan to use, and call your insurer to ask questions if you’re not sure.