Do You Need Extra Insurance When Renting a Car?

Renting an automobile should be a pretty straightforward experience. You go to the rental car counter, get the car you want at the price you’re willing to pay, sign a few forms, and you’re off. If only it were that simple.

When renting an automobile, will your insurance or credit card really protect you in case of an accident? Maybe the insurance offered by the rental car company is worth the cost.

As most anyone who has ever rented a car knows, what should be easy quickly turns into confusion when the rental car salesperson asks: “do you want to purchase insurance?” Too often, the inexperienced traveler can be caught off-guard and they then choose the seemingly safer route by declining it. Yet the answer to the question is usually not a simple “yes” or “no” Rather, it actually depends on numerous factors.

Here is what you need to know about rental car insurance to avoid being caught unaware at the rental counter.

Does My Personal Auto Insurance Cover Rental Cars?

If you already own or lease a car that is insured, you probably don’t need to purchase liability insurance from the rental car company. Review your auto insurance policy or check with your agent for verification. Most policies will extend the liability coverage to any vehicle you rent. However, this does not apply if you don’t own or lease any personal autos under your personal name.

The same liability limits that are on your personal auto policy will apply to your rental car. Your liability coverage will protect you if you injure someone or damage their property while using the rental vehicle. However, the comprehensive and physical damage insurance coverage under your personal auto insurance will not cover any collision, vandalism, or theft to the rental.

What about Comprehensive and Physical Damage? Do I need Loss Damage Waiver (LDW)?

As mentioned, your personal auto insurance does not cover the comprehensive and physical damage if you rent a car. This coverage can be provided through your credit card company, but only if you have subscribed for it and paid an annual fee. The subscription makes the coverage primary. Otherwise, it is excess depending on the credit card used. In addition, there will be limits on the value of the car you rent and other restrictions. Make sure to read the fine print.

What About Renting a Car Abroad?

If you are renting a car abroad, check with your credit card company to find out whether they will cover physical damage and comprehensive coverage outside the U.S. and its territories. This is a situation where it would make sense to purchase the coverage from the rental car company to avoid hassles in foreign countries.

What is the Difference Between the LDW Coverage From the Car Rental Company and the Credit Card?

When you sign a rental agreement, you become liable for:

  • The full value of the vehicle

  • Towing and storage

  • Loss of use

  • Administrative fees

  • Diminished value

None of the above are covered by the credit card companies. These items are, though, 100% covered by the LDW provided by the car rental company.

If you get into an accident, the rental car company will charge you for the time that the car was not rented, including an administrative fee. And what does full value of the vehicle mean? Some travelers who declined rental car company insurance are shocked to learn that it can often be the price of purchasing a new car. 

What Should You Do?

Bottom line: you are better off buying LDW coverage from the car rental company and if you want to avoid all potential hassles, possibly even the offered liability insurance. All of the hidden costs in the contract will be covered by them, without subjecting you to any deductibles. The additional cost of $30 per day is probably worth it. Most people already have a $500 to $1,000 deductible on their own automobile policies, but it will not take much to have a claim that exceeds $3,000 based on all of the hidden costs embedded in the rental agreement.