Rental Car Insurance: What is it? How does it Work?

UPDATED ON Feb, 04 2024

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The Importance of Understanding Rental Car Insurance Policies

Renting a car can be a convenient way to get around, but it also comes with some risks. One of those risks is being responsible for any damage to the rental car in the event of an accident. That’s where rental car insurance comes in. It’s important to understand the different types of rental car insurance policies that are available, as well as what they cover and what they don’t. This understanding can help you make an informed decision about whether or not to purchase rental car insurance, and if so, which policy to choose. In this article, we will provide some information and insights on rental car insurance policies 

What is Rental Car Insurance?

Rental car insurance is a type of insurance that provides coverage for rental cars. When you rent a car, the rental company will typically offer various insurance options, including collision damage waivers (CDW) or loss damage waivers (LDW) that cover damage or theft of the rental car. The cost of these waivers can vary depending on the rental company and the length of the rental period. Some third-party car rental insurance providers also offer cheap rental car insurance that can provide coverage up to a certain amount, typically ranging from $75,000 to $100,000, for an affordable price. Unlike waivers offered by rental car companies, these third-party insurance policies are actual insurance policies that can protect your rental car almost anywhere in the world.

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Types of Rental Car Insurance

Collision Damage Waiver (CDW)

A Collision Damage Waiver (CDW) is an optional insurance coverage offered by rental car companies to individuals who rent cars. It is a contract that covers the cost of damages or losses incurred to the rented vehicle in the event of an accident or other damage. The CDW policy is usually an add-on option for renters and the cost of the waiver may vary depending on the rental company and the type of car being rented.

It is important to note that a Collision Damage Waiver only covers the rental car and does not include liability for any injuries or damages to other cars, property or people involved in the accident. Also, CDW may not cover all types of damage, such as damage to the tires or windows, which may require additional insurance or be excluded from coverage altogether.

While CDW is an optional insurance, rental car companies may require you to either purchase CDW or provide proof of alternative insurance coverage before renting a car. You should review the rental agreement carefully before renting a car to understand the specific terms and conditions of CDW coverage.

 

Woman Showing Man Car Collision

Young Woman Showing Man Car Collision At Roadside

Loss Damage Waiver (LDW)

Loss Damage Waiver (LDW) is a type of optional insurance offered by rental car companies to customers when renting a vehicle. LDW is a combination of Collision Damage Waiver (CDW) and Theft Protection, and it typically provides coverage for losses or damages incurred by the rental vehicle in the event of an accident or theft, as long as the renter has not violated the rental agreement’s terms and conditions.

LDW is not mandatory, but it can be a smart option for renters, as it can waive their financial responsibility for any damages or losses that may occur to the rental vehicle during the rental period. However, you should be aware that LDW coverage may not cover all types of damage, such as damage to the tires, windshield or interior of the car. Additionally, if the rental vehicle is damaged due to the your violation of the rental agreement’s terms and conditions, you may still be responsible for the damage, even if you have purchased LDW coverage.

When renting a car, you should carefully review the rental agreement and understand the specific terms and conditions of the LDW coverage, as well as any exclusions and limitations that may apply.

Supplemental Liability Insurance (SLI)

Supplemental Liability Insurance (SLI) is an optional insurance coverage that provides additional liability protection to the driver of a rental car. The coverage limits for SLI can vary depending on the rental agency and the statutory limits of the country in which the rental takes place.

In the United States, for example, the maximum combined single limit of liability is $1,000,000 or $2,000,000, depending on the rental agency and the type and class of vehicle, or the type of physical injury, death, or extent of property damage for each situation.

SLI is sometimes referred to as Accident Liability Insurance/ALI, Supplemental Liability Protection, Liability Insurance Supplement, or Renter Liability. SLI is an optional service, and it is the responsibility of the driver to carry insurance to protect

Personal Accident Insurance (PAI)

Personal Accident Insurance (PAI) is an insurance policy that provides coverage for accidental medical costs, emergency care, and accidental death resulting from an accident. PAI is designed to provide a financial benefit to help cover the costs of being injured in an accident. The policy pays out a benefit if you are injured in a manner listed in the policy.

PAI typically insures drivers of a rental car and their passengers during a rental trip. It provides medical, hospital, death, and dismemberment benefits for bodily injury resulting from an accident. The coverage is for the term of the rental agreement and will not exceed a 30-day consecutive period. 

The coverage limit of PAI may vary depending on the specific policy and insurance provider. However, it typically covers a wide range of injuries such as broken bones, burns, dismemberment, and accidental death.

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What Does Rental Car Insurance Cover?

  • Coverage for damage to the rental car – Rental car companies typically offer coverage for damage to the rental car, which is referred to as a Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW). CDW/LDW provides protection to renters when the rental car is damaged or stolen. This type of coverage can protect you against financial liability, including the cost of repairs or the full value of the car if it is totaled. However, CDW/LDW may not cover liability-related expenses and may not cover damage resulting from risky behaviors, such as taking the rental car off-road or speeding. Some waivers may also exclude coverage for damage to specific parts of the rental car.
  • Coverage for theft of the rental car – CDW coverage only covers the bodywork of the vehicle, excluding other sections of the car, and comes with an excess or deductible that must be paid before the coverage takes effect. On the other hand, LDW combines CDW with theft protection in case the rental car is stolen. A loss damage waiver covers the rental car if an accident happens or if it’s stolen during the rental period. It is important to note that LDW coverage may vary by rental company, and it is best to read the coverage details carefully.
  • Coverage for personal injuries – Generally, most rental vehicles come with minimum third-party liability insurance (also known as TPL). The basic TPL is quite low and you can purchase Supplemental liability insurance (SLI) to cover you up to the mandatory limits in case of an accident. SLI is also known as accidental liability insurance (ALI) and is offered as a separate product by car rental agencies.

 

What Rental Car Insurance Doesn’t Cover?

Rental car insurance typically does not cover everything, and it is essential to understand what is not included in the policy before you buy car rental insurance. Typically, rental car insurance may not cover some of the following situations:

  • Personal belongings: Rental car insurance generally does not cover theft of your personal belongings or any damage that they may incur in the car. 
  • Certain types of damage: Some rental car insurance policies may not cover certain types of damages, such as damage to the wheels, tires, mirrors, windshield, or undercarriage. You may have to pay extra to add coverage for these parts. 
  • Intentional damage or illegal activities: Rental car insurance may not cover damage caused intentionally or by illegal activities, such as driving under the influence of drugs or alcohol. 
  • Loss of rental income: Rental car insurance may not cover the loss of rental income that the rental car company may incur while the vehicle is being repaired.
  • Coverage for damage to other vehicles or property – According to some sources, rental car insurance may include liability coverage, which pays for damages to other vehicles or property caused by the renter while driving the rental car. It’s important to carefully review the terms and conditions of any rental car insurance policy to fully understand the coverage and exclusions.

It is important to read the terms and conditions of rental car insurance carefully to understand the coverage limitations and exclusions. 

How Does Rental Car Insurance Work?

How to Purchase Rental Car Insurance?

To purchase cheap rental car insurance, there are several options available. One option is to buy coverage from the car rental company itself. Many rental car companies offer different types of insurance, including collision damage waivers and liability insurance. Another option is to purchase third-party rental car insurance, which can be more affordable than the policies offered by rental car companies. Third-party car rental insurance providers offer different levels of coverage, from loss damage waivers covering up to $100,000 in damage to your rental vehicle to personal accident insurance providing up to $50,000 in coverage. When you buy car rental insurance online, it’s important to carefully review the policy details, including the coverage limits, deductibles, and exclusions, to ensure that it meets your specific needs.

Understanding Rental Car Insurance Deductibles

When purchasing rental car insurance, it’s important to understand the deductible (excess) and how it works. A deductible is the amount of money that you will be responsible for paying in case of an accident or damage to the rental car. The deductible is the amount you’re responsible for paying before your insurance kicks in to cover the rest of the costs. Comprehensive and collision insurance policies usually include a deductible, but you may also have a deductible for personal injury protection or other types of coverage.

Your rental car insurance deductible is usually a set amount that you will be responsible for paying in case of an accident. If the damage to the rental car costs less than your deductible, you will be responsible for the entire amount. If the damage is more than your deductible, you will be responsible for paying the deductible, and your insurance will cover the rest of the costs.

It’s important to read and understand the terms of your rental car insurance policy before purchasing it to ensure that you know what your deductible is and what is covered. Additionally, it’s a good idea to compare multiple insurance policies to find the best deal and coverage for your needs.

Limitations and Exclusions of Rental Car Insurance Policies

Rental car insurance policies often come with limitations and exclusions that policyholders should be aware of. Here are some details on the most common limitations and exclusions of rental car insurance policies: damage to the undercarriage, tires, or windshield and rental vehicle interior. In addition, the coverage may not apply if the driver violates the rental agreement or is under the influence of drugs or alcohol. 

CarInsuRent car hire excess insurance starts from as low as $6.49 per day* to $94.90 for an annual policy. Our policies covers the excess on damage and theft up to €2,500 and provide full protection that Includes single vehicle damage, roof and undercarriage damage, auto glass and widescreen damagetowing expenses, misfuelling, loss of car key and tyre damage. We cover multiple drivers between the ages of 21 and 84 years.

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Filing a Claim with the Rental Car Insurance Company

If you are involved in an accident while driving a rental car, it is important to exchange personal information with the other driver, including name, address, license plate number, rental vehicle information, insurance company, and policy number. You should also document the accident with pictures and notes. If the other driver is at fault, get the other driver’s contact and insurance information and call their insurance company directly to file a claim.

If you are at fault or have non-collision damage, you can file a claim with the rental car insurance company. The process for filing a claim with the rental car insurance company may vary depending on the provider, but typically, you would need to provide details of the incident, including the date, time, and location of the accident, as well as any police report numbers, if applicable. You may also need to provide documentation of the damage, such as photographs or repair estimates. 

 

Insurance claim form

Insurance claim form

Car Rental Insurance Options 

Car rental insurance can be a confusing topic for many people, but it is an essential aspect of renting a car. Here is a breakdown of the different car rental insurance options available to help you make an informed decision:

  • Rental company’s insurance – Most rental car companies offer their own insurance, which typically includes damage cover (CDW), theft cover (Theft Protection), and third-party cover (Third-Party Liability). These types of insurance options usually come with an excess, which is the first part of the bill that the renter will be responsible for. The rental company’s insurance is convenient, but it can be expensive and may not provide comprehensive coverage.
  • Personal auto insurance policies – Personal auto insurance policies may cover rental cars, but it depends on the policy and the coverage. If the policy includes collision and comprehensive coverage, it may extend to rental cars. However, liability coverage may not extend to rental cars, so it’s important to check with the insurance company before renting a car.
  • Homeowners or renters insurance – Homeowners or renters insurance may cover personal belongings that are stolen from a rental car, but it is important to check with the insurance company to confirm coverage.
  • Travel insurance – Travel insurance may offer coverage for rental cars, including collision damage and theft protection. However, it is important to check the policy to confirm the coverage and any limitations or exclusions.
  • Credit card rental car insurance benefits – Some credit cards offer rental car insurance benefits, which may include coverage for damage and theft. However, the coverage and limitations can vary by credit card, so it’s important to check with the credit card company to confirm the coverage. Check if your personal insurance or credit card covers rental car insurance. 
  • Third-party car rental insurance – Third-party car rental insurance is an affordable option that can provide comprehensive coverage for rental cars. This type of insurance typically covers collision damage, theft protection, and liability, and may offer higher coverage limits than rental company insurance. It can provide a cost-effective alternative to rental car company insurance.

In summary, there are various car rental insurance options available, including rental company insurance, personal auto insurance policies, homeowners or renters insurance, travel insurance, credit card rental car insurance benefits, and third-party car rental insurance. It’s important to consider the coverage, limitations, and costs of each option to choose the best one for your needs.

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Conclusion – Importance of Making Informed Decisions About Rental Car Insurance

It is clear that making informed decisions about rental car insurance is crucial for protecting yourself against potentially costly damage or liability. One option for rental car insurance is to rely on the coverage offered by the rental company itself, but this option may come with high fees and certain restrictions, such as limited coverage for certain types of vehicles.

Alternatively, you may be able to rely on your own personal auto insurance policy for rental car coverage. However, the specific coverage you have will depend on your policy, and it may not provide adequate protection in all cases.

If you do not have sufficient rental car coverage through either the rental company or your personal auto insurance, you may want to consider purchasing additional coverage through options such as travel insurance, credit card rental car insurance benefits, or third-party car rental insurance. It is important to carefully review the terms and restrictions of any additional coverage you consider to ensure that it provides the necessary protection for your rental car needs.

Familiarize yourself with the rental car policy. Before renting a car, it’s important to read the rental car agreement and understand the terms and conditions of the rental. This can help you avoid unexpected fees or charges.

Know what to do in case of an accident. In the event of an accident, make sure everyone in the vehicle is okay and contact the rental car company and local authorities as necessary. Take photos and exchange information with any other drivers involved in the accident.

In conclusion, the importance of making informed decisions about rental car insurance cannot be overstated. By understanding the options available and carefully reviewing the terms and restrictions of any coverage you consider, you can protect yourself against potential costs and liability associated with rental car use.

It is important to carefully review the terms and conditions of any rental car insurance policy before renting a car. In addition, it is a good idea to take pictures of the rental car before driving it off the lot and to document any damage, no matter how minor, to avoid any disputes later on.

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FAQ

Do I need car rental insurance?

If you’re planning to rent a car, it’s important to consider whether you need car rental insurance. While the answer may vary depending on your specific situation and coverage needs. At the bare minimum, you will need liability car insurance before you hit the road with a rental car. Liability insurance covers injuries and property damage you may cause to other people while driving. However, it’s important to note that liability insurance typically only covers damages to other people, not to the rental car itself.

For additional coverage, 3rd party car rental insurance providers offer loss damage waivers that can cover up to $100,000 in damage to your rental vehicle. We recommend considering a collision damage waiver, which can protect you in case of damage to the rental car, or a personal effects coverage, which can cover your personal belongings in case of loss or theft.

It’s a good idea to research your options and consider your specific needs before making a decision.

 

Is car rental insurance worth it?

Rental car insurance may be worth it if you don’t have existing coverage that would apply to rental cars, or if you want the added peace of mind that comes with additional coverage. We suggest considering third-party car rental insurance as an alternative to rental car company insurance, especially if you have other types of insurance that may provide some coverage for rental cars. Third-party insurance can often be less expensive than rental car company insurance, and may provide more comprehensive coverage than what is offered by the rental car company.

Rental car insurance from the rental car company may be worth it if you don’t have other options or need to fill any gaps in coverage from your existing policies. However, it’s important to review the policy carefully and understand what is covered, as well as any deductibles and exclusions that may apply.

Overall, whether rental car insurance is worth it will depend on your individual circumstances and the level of coverage you need. It’s a good idea to review your existing policies and consider the coverage being offered by the rental car company and third-party providers before making a decision.

 

How much does car rental insurance cost? 

If you ask yourself “how much is car rental insurance per day?” The cost of car rental insurance varies based on several factors, such as the type of vehicle you wish to rent and the level of coverage you need. Some car rental companies provide options for insurance coverage at the time of rental, but the cost for this coverage can vary widely depending on the rental company and the type of coverage you choose. Typically, CDW coverage with a reputable rental company will increase the cost of renting a car by $15 to $30 per day. 

It’s worth noting that third-party car rental insurance options are also available. The cost for this type of coverage can start at $5 per day. 

 

Should you buy the extra car rental insurance?

Whether or not to buy the extra car rental insurance depends on your individual circumstances and coverage needs. Some people end up purchasing supplemental insurance protection that isn’t truly necessary, which can increase the cost of renting a car by $15 to $30 per day. Before renting a car, it’s a good idea to check with your auto insurance company to see what coverage you already have. Some credit cards also offer rental car insurance as a benefit, but it’s important to check the terms and conditions of your card’s coverage to understand any limitations or exclusions. Additionally, rental car companies typically offer a collision damage waiver or loss damage waiver, which is not really insurance, but rather a waiver that says the rental car company won’t hold you responsible for all the damage, although it won’t cover you if the accident was caused by your carelessness. It’s important to read the fine print of any waivers offered by the rental car company to understand any limitations or exclusions. 

If you do decide to purchase additional coverage, options like loss damage waivers are available through third-party insurers, which offer policies that can cover damage to the rental vehicle, as well as liability and personal accident insurance. Ultimately, it’s important to weigh the potential risks and benefits of purchasing extra coverage and determine what makes the most sense for your specific situation.

 

Does rental car insurance cover lost keys?

It appears that rental car insurance may not typically cover the cost of replacing lost or stolen keys. However, additional protection products can be purchased from the rental company, such as Roadside Assistance Protection, which may cover the cost of lost keys. It is also possible to purchase rental car insurance from third-party providers, which may cover lost keys as well as damages to the rental vehicle and personal belongings inside it. As with any insurance policy, it is important to read the terms and conditions carefully to understand exactly what is covered and what is not.

 

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