Whether you’re about to rent a car for the first time or you're an old pro, you might not know whether it makes sense to buy insurance from the rental car company.
Let’s begin by taking a look at what rental car companies typically offer and then go over the considerations that will help you make an informed decision about purchasing the policy. And note that in some cases it's possible to buy some, and not all, of the kinds of coverage described below.
Rental Car Insurance Coverage
Loss Damage Waivers
Strictly speaking, a loss damage waiver isn't insurance; it's a waiver of a potential claim by the rental car company against you. When you drive off the lot with your rented car, you are responsible for any damage the vehicle will suffer until the moment you return it to the rental company. If you purchase this waiver, you won't be held responsible for any damage as long as it isn't caused by a prohibited use of the car, such as driving it off-road (on rough terrain).
Some rental companies will offer different types of loss damage waivers for you to choose from. Some are total, meaning you don’t pay – period – for any damage not incurred during prohibited use of the vehicle. Some are partial or limited. These have a deductible, so, for example, a $500 deductible would mean you are responsible for the first $500 in damages but anything above that amount would be waived (consider The Pros and Cons of Increasing Your Auto Deductible). Obviously, total waivers cost more than partial or limited ones.
Liability Insurance Supplement
As its name implies, liability insurance supplement is liability insurance that applies if a claim is made against you by a third party or parties following an accident. This insurance is typically in the amount of $1 million and is almost always primary to your personal auto insurance policy, meaning that if you settle a claim or have a judgment entered against you, this insurance would pay first. If the amount of the settlement or judgment exceeds the amount of the primary insurance, your personal auto insurance will pay the excess amount, up to the limit of that insurance.
The amount offered by rental car companies varies and it might be less – even, in some cases, substantially less – than $1 million. In some rare cases, moreover, the liability insurance supplement offered by the rental company might be secondary, rather than primary. Also, be aware that coverage for uninsured motorist (UM) and underinsured motorist (UIM) claims is typically limited to $100,000. Read the policy carefully to make sure the liability insurance supplement covers everything you want it to.
Personal Accident Insurance
Personal accident insurance provides payment for medical expenses incurred as a result of an accident, typically up to $2,500 or $5,000, and provides a death benefit in the event of a fatal accident, typically in the range of $100,000 to $200,000. Some policies also provide payment for ambulance services.
This coverage usually extends to your passengers as well, although often in smaller amounts. This insurance is typically primary to your health insurance and in addition to any life insurance.
Personal Effects Coverage
Some rental companies cover the loss of personal effects, such as cameras or laptops. Coverage limits are typically hundreds or, at most, a few thousand dollars and there are many exclusions. Again, this would typically be primary to your personal auto insurance.
Read the Policy
This can’t be stressed enough. Different rental companies offer different policies, and even the same company might offer different policies across different states on account of each state's particular legal requirements.
Standing at the rental car kiosk at the airport is not the best or most comfortable place to carefully review the policy. If possible, get your hands on the details ahead of time. In some cases, the company's website might have, if not exact copies of policies, then at least detailed descriptions of what coverage they offer. If you know you'll be renting a car soon, contact the company you will rent from and ask them for a copy of their policy. If you aren’t sure what company you will be renting from, look into the companies that have locations at the airport or in the area you'll be renting in.
Do I Really Need to Pay for the Rental Company’s Policy?
If you're renting a car, chances are you also own one and have a personal auto insurance policy. That policy likely covers you in rented cars as well, typically with the same coverage limits that apply to your own car.
If you don't have a personal auto policy, you will, of course, have to buy coverage from the rental company. In some cases, the agents will not ask you at the counter whether you have a personal policy so it is your responsibility to ensure that you don't drive off without insurance coverage. Driving without coverage is illegal and extremely risky.
If you do, however, have a personal policy, then in some respects this is a personal decision with no right or wrong answer. However, in spite of the high cost, there are a few things to be said in favor of buying.
Do you have collision coverage as part of your personal auto insurance? Collision coverage covers damage to your vehicle, as opposed to the property damage part of your policy that covers damage to other people’s property, including their car. It’s expensive and if you own an older vehicle that isn’t worth much, you might have opted not to buy collision coverage (unlike property damage coverage, it isn’t required under the law). If that's the case, then you won’t have collision coverage for a rented car either. Rental cars are usually fairly new, often with under 20,000 miles on them. Given the value of those cars, collision coverage is a great asset, because if you total a rental car you will receive a very large bill from the company.
What about breakdowns? Here is where a roadside assistance plan like those offered by AAA is a huge plus. In many cases, this isn't covered by rental companies' policies. Some will offer roadside assistance on an as-needed basis but it can be quite expensive.
Out-of-pocket expenses are another issue worth considering. If the rental car is damaged, you will first have to pay for the damage yourself and then submit a claim to your personal insurer along with receipts. It could take months before you recover the funds. If you are insured through the rental company, however, you will have no out-of-pocket expenses.
What about premium increases? If you submit a claim to your insurer, your monthly premium payments will almost certainly increase, in some cases substantially (find out more in The Top 5 Factors That Affect Your Auto Insurance Premiums). If the loss is covered by rental car insurance, you won’t need to file a claim with your insurer and, hence, will not suffer a premium increase.
Credit Card Coverage?
Another thing to consider is that many credit card companies provide rental car insurance if you use their card to rent the car (learn about other benefits in 9 Insurance Perks Your Credit Card Provider Might Offer). These policies vary significantly across credit card companies and across states and they are often secondary, meaning that any other insurance you have, such as a personal auto policy, must pay first before this coverage kicks in.
Rental Car Insurance Companies
Instead of purchasing a policy though the rental company, you can consider getting one from a company that specialize in short-term insurance for rental cars. Contact them and ask about the coverage they offer. In many cases, they will be able to beat the rental company's insurance prices.
To Buy or Not to Buy?
I can't stress enough that you should read the policies carefully. There is no single right answer to whether rental car insurance is worth it. Before you can make an informed decision, you need to know what coverage your personal auto policy, credit card company, and the rental car company (or rental car insurance company) provide. If in doubt, consult the agent from whom you bought your personal policy for more advice and information.