What is rental car insurance?

Man wearing sunglasses and sitting in car, thinking about rental car insuranceImage: Man wearing sunglasses and sitting in car, thinking about rental car insurance

In a Nutshell

Car rental insurance can help protect you from the financial risks that come with renting a car. It’s available at most car rental agencies, but before you get this coverage, make sure you aren’t wasting money on duplicate insurance. Check your personal auto policy, credit card benefits and health insurance policy to see if you’re already covered.
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When you arrive in a new city and you’re about to rent a car, wading through a menu of car rental insurance options on the spot can be stressful and confusing.

Although it may be tempting to skip it, car rental insurance could come in handy because it can pay for repairs and other costs if the rental car is damaged, stolen or vandalized. Without coverage, you could be on the hook for these costs. Car rental companies typically offer insurance options, but some coverage may already be included in your personal auto insurance, homeowners or health insurance policy, or as a benefit through your credit card company.

Here’s what rental car insurance typically does and doesn’t cover — and how to tell before stepping up to the rental counter whether you need to purchase it.

How does rental car insurance work?

Nearly every state requires drivers to have some form of car insurance while driving. Here’s how auto insurance generally works when renting: If the car is damaged or stolen while you’re responsible for it, you can file a claim and any required documents with the rental car insurance company. If your claim is approved, the insurance company will either reimburse you for certain expenses or pay directly for expenses, up to your coverage limit and depending on the type of coverage you buy. Here are the four main rental car insurance options.

Types of rental car coverage

  • Supplemental liability insurance: This coverage pays for damages and medical expenses for another driver in an accident that’s your fault. The rental company must provide at least the minimum amount of liability coverage required in the state you rent the car. Some agencies offer supplemental liability insurance to extend the minimum coverage.
  • Loss damage waiver: Also called a collision damage waiver, a loss damage waiver isn’t actually insurance — it’s a waiver that releases you from financial responsibility if the rental car is damaged or stolen. It may also cover towing, administrative and “loss of use” fees, which car rental companies charge to make up the revenue when they can’t rent out the car while it’s being repaired.
  • Personal accident insurance: This coverage pays for medical expenses for you and your passengers after a car crash.
  • Personal effects coverage: This reimburses you if items in the rental car are stolen, up to your coverage limit.

Some car rental agencies also offer roadside assistance, which may cover mishaps on the road like lockouts, towing, flat tire repair and gasoline delivery.

What is rental car reimbursement coverage?

Some people confuse rental car insurance with rental car reimbursement coverage, which comes with some personal auto insurance policies. If you own a car and it needs repairs after a covered incident, rental car reimbursement coverage helps pay for your rental car while your vehicle is being repaired.

Where can I get rental car insurance?

In addition to a car rental agency, you may be able to get car rental insurance through the following:

Your credit card

Some credit cards offer a car rental insurance benefit that provides either primary or secondary coverage. With secondary coverage, you must file a claim through your auto insurance company or the car rental company first, and the credit card company will pay eligible benefits not covered by your car or rental car insurance. With primary coverage, you can file a claim with your credit card company without having to go through your auto insurance company first.

Your personal car insurance policy

Your car insurance policy may already provide rental car coverage. Check with your insurance company if you’re unsure. And if you need to use a rental car for business, you may be covered under your employer’s insurance.

Third-party agency

Insurance companies such as Allianz and Bonzah sell stand-alone rental car insurance policies if you don’t want to buy coverage at the rental agency. These policies may include a collision damage waiver, plus extras such as a 24-hour hotline for emergencies or roadside assistance, and baggage loss insurance.

Is it necessary to buy rental car insurance?

If you already have coverage through your own car insurance policy or credit card, you may not need to purchase rental car insurance. But be sure to consider whether your existing policy limits provide adequate coverage. Here are some considerations with each type of rental car coverage.

  • Supplemental liability insurance: The liability coverage on your own auto insurance policy should help cover any damage or injuries you cause another driver. But if you have only the minimal amount of liability coverage required by your state, you might buy this to provide more protection.
  • Collision damage or loss damage waiver: If you have comprehensive coverage and collision coverage through your auto insurance policy or credit card, you likely won’t need a collision damage or loss damage waiver.
  • Personal accident insurance: If you already have personal injury protection or medical payments coverage, your medical costs would be covered after an accident, up to your coverage limit. Your personal health insurance may also cover medical bills.
  • Personal effects coverage: A homeowners or renters insurance policy generally provides coverage if your property is stolen from a rental car.

How much does car rental insurance cost?

Rental agencies typically charge a fee per day for each type of coverage. Here’s how those fees typically add up.

  • Liability: $7 to $14 per day
  • Loss damage waiver: $10 to $20 per day
  • Personal accident insurance: $1 to $5 per day
  • Personal effects coverage: $2 to $5 per day

For full coverage, rental car insurance adds about $20 to $44 per day onto your bill. Be sure to bake this cost into your budget the next time you want to hit the road in a rental.

What’s next?

If you have an auto insurance policy, you may not need to purchase rental car insurance. Before you rent a car, call your auto insurer and ask whether your liability, comprehensive, collision and personal injury protection or medical payments coverage extend to rental cars. And be sure to check whether there are exclusions, extra costs and any other requirements.

The same goes for your credit card. Read through your credit card benefits or call the credit card issuer to understand any rental-car-related coverage you have, including the types of vehicles covered and any other restrictions or requirements.

If your personal auto insurance policy and credit card don’t offer coverage, consider purchasing rental car insurance. Research the company’s policies and fees before you reserve the car. Take some time to understand the insurance the company offers so that you’ll know which types of coverage you need and have an estimate of how much you’ll pay before you get to the rental car counter.

About the author: Kim Porter is a writer and editor who has written for AARP the Magazine, Credit Karma, Reviewed.com, U.S. News & World Report, and more. Her favorite topics include maximizing credit card rewards and budgeting. Wh… Read more.