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Do auto insurance companies cover rental car insurance?

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Rental car insurance 1

When you rent a car, you assume the risk of driving it. That means if you cause any property damage or injuries, you'll have to pay out of pocket -- unless you have some form of rental car insurance coverage.

You probably spent a good amount of time finding the best deal on your rental car. But if you listen to the advice of the agent at the rental desk to buy their rental car insurance, you could end up paying as much as $20 per day for it, canceling out any good deal you may have uncovered.

The thing is, rental car insurance is optional. The desk agent is obligated to inform you of the fact and will ask you to sign off if you waive or decline the pricey rental car coverage. If you're asking yourself "do I need to buy additional insurance when renting a car," read on to explore your options and know what to do before you get to the rental counter the next time.

What is rental car insurance?

Rental car insurance covers the vehicle you've rented against the same perils or dangers you'd face in your own vehicle. Rental vehicle coverage is similar to standard auto insurance, but has different terminology. Knowing what the terms mean will come in handy next time you're renting a car.

Comprehensive and collision coverage vs. damage waivers

Your auto policy uses the terms comprehensive and collision coverage to define insurance for any losses or damages to your car from a crash, bad weather, fires or theft. Once you pay the deductible, the vehicle insurance kicks in to pay the rest, according to the limit of your policy.

The equivalent in rental car insurance coverage is known as damage waivers. You can purchase a loss-damage waiver (LDW) or collision damage waiver (CDW). In case of theft or damage, you walk away and leave the rental car company to deal with the issue.

Damage waivers aren't actually insurance. According to the National Association of Insurance Commissioners (NAIC), "Because CDWs are not regulated as insurance, car rental companies can essentially charge any amount they wish." You're not buying insurance -- you're paying the rental company to waive its right to pursue repayment from you.

Auto liability coverage vs. rental car supplemental liability protection

Your auto insurance policy includes liability coverage, which reimburses others for damage caused by you and your car. It's the most commonly-held vehicle insurance -- all states except New Hampshire require auto owners to have liability insurance.

The rental car insurance equivalent is supplemental liability protection. You can typically purchase up to $1 million worth. Some companies offer "extended" supplemental liability coverage with higher limits (up to $2 million is typical).

PIP or MedPay vs. rental car personal accident insurance

If you or your passengers are injured in an auto accident in your own car, the medical expenses may be paid by personal injury protection (PIP), medical payments coverage or health insurance. The coverage may also include reimbursement for funeral costs. Rental companies offer the same type of insurance but call it personal accident insurance.

Personal property coverage vs. personal effects coverage

If you have homeowners or renters insurance, your valuables are covered from theft, damage or loss, even when you're away from home. You'll need to check your coverage limit; off-premises coverage is usually restricted to a percentage of your total coverage.

Personal effects coverage reimburses you, up to a specific limit, if your belongings are stolen from the rental car. If you're planning on traveling with expensive luggage or equipment, the coverage could be a lifesaver.

Does my car insurance cover rental cars?

"Is a rental car covered by my insurance?" is a common question. Typically, your auto insurance will extend to a rental car. You'll have the same coverages, limits and deductible for your rental that you'd have for your regular car. But before you take a trip, check with your auto insurer to confirm.

Do I need to buy additional insurance when renting a car? If you have full coverage on your personal car, the comprehensive, collision, medical payments, excess liability (umbrella) and liability coverage will also apply to your rental, saving you from having to buy additional insurance. However, there are a few things you should watch out for:

  • If you're renting for commercial or business purposes, your personal car insurance coverage may not apply.
  • If you're renting a vehicle considered to be commercial (such as a van) your auto insurance policy may not provide protection.
  • Your auto insurance policy might not cover the rental agency's administrative fees, towing charges, compensation for the loss of use of the vehicle while it's being repaired or its diminished value.
  • For longer-term rentals (one week or longer), your current insurer might impose limits.

Is it necessary to buy rental car insurance at the counter?

Rental car insurance 2If you have a car and insurance for it, you may not need rental car insurance. In fact, many personal finance experts advise most people to pass on insurance offered at the rental counter. This doesn't mean you should skip insurance altogether. There are times when you're better off buying the rental car insurance coverage at the counter:

  • You don't have a car or vehicle insurance.
  • To protect your premiums. Some rental coverage is primary, replacing your auto insurance policy. If you have an accident, not making a claim with your insurance company will keep your record clean and insurance premiums down.
  • Your own insurer restricts your coverage because your trip is business-related.
  • If you're renting a vehicle that's labeled as commercial by the rental agency. Personal car insurance policies don't typically insure commercial vehicles.
  • You have the minimum required liability coverage in your state, and it's much less than the minimum required where you're going.
  • Your own insurer limits your coverage because you're renting for a week or longer.
  • Your insurance company won't cover all rental agency costs in the event of an accident.
  • You're traveling with expensive belongings or equipment and have no coverage or insufficient coverage from your home or renters policy.
  • Your deductible on your regular auto policy is very high, making the CDW more attractive.

Three additional rental car insurance coverage options

If you don't have a personal auto insurance policy, you still have options before you opt for the rental agency's expensive coverage. There are three additional rental car insurance. Regardless of which you choose, you'll need to decline the coverage offered at the rental counter.

1. Coverage through your credit card

Rental car insurance coverage may be available if you rent using a credit card, especially a premium or travel rewards card. Credit card companies vary wildly in what they cover (and don't cover). Most major credit cards offer some form of rental car insurance. Usually, it's secondary coverage, meaning you still have to report the accident to your primary insurer, and then the secondary policy picks up some of the remaining costs. Some of the higher-end cards also offer primary coverage.

To get the free rental car insurance coverage from most credit card companies, you need to make sure you do the following:

  • Charge the entire rental to the card
  • Decline additional insurance at the rental agency
  • Rent the vehicle in your own name

You should also know:

  • Your coverage probably doesn't include reimbursement for administrative costs, taxes, and any diminished vehicle value.
  • Vehicles used for off-road fun are often excluded. Ditto expensive sports cars and luxury vehicles.
  • The secondary insurance coverage means you still have to file a claim with your primary insurer. You may have to pay costs upfront and be reimbursed later.
  • If you're liable for damage, the credit card may not cover your replacement rental.
  • Some cards exclude coverage for "loss of use" charges imposed by rental agencies. Check the fine print.
  • You'll have a limited time following the incident to make a claim for reimbursement -- 30 or 45 days is normal.
  • Coverage may only apply for a limited number of days. For instance, Visa covers rentals up to 15 days long in the US and 30 days overseas.

2. Third-party rental car insurance coverage

There are insurers that write standalone rental policies, allowing you to purchase coverage before you take a trip. They're known as third party rental car insurance companies. You can get quotes and buy rental car insurance online. Coverage is typically cheaper than the car insurance you'd buy at the rental desk, making the option worthwhile.

Allianz Travel offers standard rental car insurance coverage for a rental vehicle up to $40,000 in value with a 32-year-old driver for $9 per day. Insuremyrentalcar.com's price for a premium vehicle worth up to $100,000 including lost key service is roughly $12 per day.

3. Adding a rider through your vehicle insurance

Another option involves asking your current auto insurance company to sell you a rider for your trip to plug any coverage holes you find. The add-on costs may cost as little as $50 a year -- less than a few days of coverage at the rental counter.

How much does rental car insurance cost?

If you purchase all four types of rental car coverage, it can add $20 to $40 per day to your rental costs. So it makes sense to compare your options. Here's a breakdown of the usual costs associated with getting rental car insurance through the rental company:

  • Loss-damage waiver (aka collision damage waiver): $10 to $20 per day
  • Supplemental liability coverage $1 million: $7 to $15 per day
  • Personal accident insurance: $1 to $5 per day
  • Personal effects coverage: $1 to $5 per day

Rental car insurance checklist

Verify this information before renting a car to save yourself time, angst and money.

  • Is my trip for business or personal reasons?
  • Will I be renting for a week or longer?
  • Does my current auto policy (or non-owner auto policy) apply to this rental?
  • Do any of my credit cards offer additional or better coverage if I use them to pay for my rental car?
  • Do I have to decline coverage at the rental counter for these coverages to apply?
  • Do I have medical coverage through my auto or health insurer?
  • Do I have homeowners or renters insurance to protect my personal belongings?
  • Is my rental part of a travel package, and is insurance included?
  • Does my auto policy cover rental agency administrative costs, loss of use and other expenses?

Rental car insurance for international travel

You may find that your U.S. auto insurance policy excludes coverage in foreign countries. You can fill the gap by purchasing rental car insurance from the rental agency, a standalone policy or through your credit card.

However, check your credit card benefits first. One real advantage they offer is coverage in many overseas locations. MasterCard, for instance, offers rental car coverage in countries worldwide except Ireland, Israel, or Jamaica. MasterCard says that you may be unable to receive benefits in Australia, Italy, or New Zealand.

How to file a rental car insurance claim

If you're involved in a rental car accident, it's important to know what to do. Whether you obtain your insurance through your auto insurer, rental car company, credit card or standalone policy, many steps are the same.

  • Report the incident to your agent, rental company, or plan administrator ASAP.
  • Provide a copy of the accident report form, repair estimate or itemized repair bill, photographs of the damaged vehicle, if available, police report, if obtainable, other documentation needed to prove your claim.
  • Provide a copy of the rental agreement showing that you declined the offered coverage.

For secondary coverage from a credit card or other policy, you'll also supply:

  • A statement from your insurance company showing the costs you owe and any amounts that have been paid.
  • If you have no other insurance, you'll need a notarized statement that no insurance or reimbursement applies.
  • A copy of the declaration page from your automobile insurance carrier.
  • Proof that you paid for the rental in full with your credit card.

In most cases, that's all you need to do. Once you file a claim and submit the paperwork, you can expect payment in as little as two weeks.