Rental Car Insurance: Do You Need It?

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Whether you’re on a business trip or vacation, picking up your rental car will always include this head-scratcher of a question: “Would you like to purchase the optional rental car insurance?”

It can be difficult to determine if you need this add-on coverage from your rental car company, especially if you haven’t thought about it before you’re ready to pick up your rental car. Understanding the details of how rental car insurance works can help you decide if this extra coverage is right for you.

Here’s what you need to know about rental car insurance:

What is rental car insurance?

When you rent a car, you have the option of purchasing rental car insurance to cover any damages or injuries from an accident you cause while driving. You can choose from various types of coverage. Rental car companies are legally required to offer the minimum state-mandated liability insurance as part of their rental agreement.

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Types of rental car coverage

Although rental car insurance sounds like a single policy that you either opt in or opt out of, you actually have four different types of rental car coverage to choose from:

  • Collision damage waiver: Also known as a loss damage waiver, this coverage isn’t technically insurance. Instead, when you purchase this waiver, the rental car company won’t hold you financially responsible for any damage to the vehicle or for theft or vandalism.
  • Liability coverage: This covers you if you cause injury to someone or damage someone else’s property while driving the rental car. Your rental car agreement will automatically include the minimum state-mandated liability coverage.
  • Personal accident insurance: This insurance will cover the medical costs for you and your passengers if you get into an accident in a rental car.
  • Personal effects coverage: If someone steals your personal property from the rental car, this coverage will reimburse you for the loss.

Rental car insurance vs. your own auto insurance

Even if you own a car and already have an auto insurance policy, you may assume that you need to get rental car insurance. But your own car insurance policy generally covers you when driving a rental car for personal reasons. Just know that many policies don’t cover rental cars you drive for business.

It’s important to understand the differences between the insurance you opt for at the rental car counter and your own auto insurance policy. Specifically, rental car coverage and your auto insurance coverage may differ in terms of damage or theft of the rental car, liability for damage or injuries to others, your own injuries, or items stolen from your rental.

If you need any of these types of coverage from the rental car company, you’ll have to opt in to each one. Other than the state-mandated minimum liability coverage, rental car insurance coverage options aren’t automatic.

Here’s a closer look at the differences between rental car insurance and personal car insurance:

Coverage Rental car insurance Personal auto insurance
Damage to rental car or theft of rental car A collision damage waiver will waive your financial responsibility if the rental car is damaged or stolen. If you have comprehensive coverage through your auto insurance, it’ll cover your rental car, minus your deductible.
Liability for injuries to others or damage to others’ property The rental car company must offer the state-mandated minimum liability coverage. You can also purchase supplemental liability protection for more coverage. Your liability coverage protects you in these instances, provided you’re using the rental car for personal reasons and you’re renting within the U.S. or Canada.
Your personal injuries Personal accident insurance will pay for medical costs for you or your passengers in the event of an accident. If you carry personal injury protection (PIP) or medical payments coverage with your auto insurance, it’ll generally cover medical costs for you and your passengers in case of an accident.
Items stolen from the rental car Rental car companies offer personal effects coverage (up to a limit) that’ll reimburse you in case you lose items if the car is broken into or stolen. Auto insurance doesn’t cover items stolen from a rental car. But if you have renters or homeowners insurance, your personal property coverage will generally cover stolen items, even if you’re traveling (up to a certain limit).

When it makes sense to get insurance on a rental car

Opting for rental car insurance may or may not be the right move for you. It depends on a number of circumstances, including where you are, what coverage you already have, your deductible, and the length of time you’ll need the rental car.

Here are some common scenarios when you may want to opt for rental car insurance:

  • If you don’t carry auto insurance, you probably want to choose at least the collision damage waiver and liability coverage, otherwise you’ll be on the hook for damages to the rental car or injuries to others in an accident.
  • If you’re renting a car outside of the U.S. or Canada, you may want to purchase the collision damage waiver and liability coverage, since your auto insurance likely won’t cover you in a rental car in another country.
  • If you have a high deductible on your personal car insurance policy, you may opt for rental car insurance, since this coverage typically has a low or no deductible.
  • If you don’t have health insurance or medical payments coverage, it may be a good idea to purchase personal accident insurance. This helps ensure your medical costs will be covered in case of an accident in the rental car.
  • If you don’t have homeowners or renters insurance, you may want to add personal effects coverage through your rental car company to ensure your personal belongings are insured against theft.
  • If you’re concerned about your auto insurance premium going up, you may prefer to purchase rental car insurance, since making a claim with your own insurance carrier could result in a rate increase.

When it may not make sense to get rental car insurance

In some scenarios, you may not want to purchase rental car insurance. By opting out of the rental car company’s optional insurance add-ons, you may be able to save money while still maintaining the insurance coverage you need.

Some common scenarios when it doesn’t make sense to get rental car insurance include:

  • If you have robust auto insurance, then your personal insurance coverage is probably already sufficient.
  • If you reserved and paid for the rental car with a credit card, you may already have collision coverage through the credit card.
  • If you’re not taking any valuables with you, there’s likely no need for personal effects coverage. Similarly, if you’re taking anything valuable with you — like a laptop — but you have a renters or homeowners insurance policy, you may not need personal effects coverage.

Credit cards with rental car coverage

Many major credit cards offer some collision coverage for rental cars if you reserve and pay for the rental car with that credit card and make the reservation in the name of the cardholder.

This kind of credit card coverage may replace the need for a collision damage waiver from the rental car company. However, this kind of coverage is often “secondary,” meaning it’ll pay out only after your personal auto insurance has kicked in. That means the credit card coverage may be able to reimburse you for your deductible, but it can’t protect you from a premium increase if your auto insurer decides to raise your rate after the claim.

Some travel credit cards offer primary rental car coverage, meaning the coverage will pay for damages first, and you don’t have to make a claim with your personal auto insurance. The specific coverage and limits for rental car insurance vary from credit card to credit card. It’s important to find out what your card covers and how much it’ll pay out before declining rental car insurance. You can call your card issuer for the details.

Some credit cards that feature this perk include:

  • Any American Express card enrolled in the credit card company’s Premium Car Rental Protection
  • Capital One Venture X card
  • Chase Sapphire Preferred® credit card
  • Chase UnitedSM Explorer Card

How much is rental car insurance?

Here’s approximately what you can expect to pay for each of the four types of rental car insurance coverage:

  • Collision damage waiver: $10 to $20 per day
  • Rental car liability coverage: $7 to $14 per day
  • Personal accident insurance: $1 to $5 per day
  • Personal effects insurance: $2 to $5 per day

Good to know: These costs are in addition to your daily rental fee. This means opting for all four types of rental car insurance for a seven-day rental could add as much as $308 to your total rental costs.

How to get a rental car through an insurance claim after an accident

If you damage your car in an accident and need to drive a rental while your car is being repaired, follow these steps to get a rental car through your insurance claim:

  1. Determine if you have rental reimbursement coverage. If you’re at fault in the accident, you’ll need to use your own auto insurance for rental car coverage. Unless you’ve chosen to add rental car reimbursement coverage, though,your insurance won’t automatically pay for the rental. Check your insurance policy to find out if you’re covered.
  2. Contact the insurance carrier about payment. Whether you’re at fault and making a claim against your insurance, or the other driver is at fault and you’re making a claim against theirs, you’ll need to talk to the appropriate insurance provider about how payment will be handled. The insurer will likely reimburse you after you pay out of pocket, but it may also pay the rental car agency directly.
  3. Review your coverage limit if you use your own insurance. Most insurers have a limit on total rental car fees or number of days they’ll cover your rental.
  4. Use the rental car company the insurer approves. If the insurance carrier tells you to use a specific rental car company, be sure to follow directions in order to receive reimbursement.
  5. Choose a rental car of the same general type and value as your own vehicle. If you’re allowed to select the vehicle, choose a similar car to your own. The cost of your rental car is more likely to be approved in this situation.
  6. Send all transaction records to the insurer. Submitting this paperwork promptly will help ensure timely reimbursement.
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About the author

Emily Guy Birken

Emily Guy Birken is a Credible authority on student loans and personal finance. Her work has been featured by Forbes, Kiplinger’s, Huffington Post, MSN Money, and The Washington Post online.

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