You’re returning from a ski trip in Tahoe when the semi-truck in front of you kicks up a few pebbles that shower onto your rental car. Nobody is hurt. Bbut the windshield of the rental car is cracked and the hood of the car is dented.
Who will pay for the damages? You? Your car insurer? The rental car company? Your credit card? The world of rental car insurance can be confusing -- especially if you don't rent cars very often.
But this guide can help you figure out what type of insurance covers what type of accident. We'll also explain why rental car insurance is an important coverage that can protect you from expensive car repair and replacement costs. Finally, we'll discuss how to get rental car insurance and explain why you may already have these benefits without even realizing it.
Types Of Rental Car Insurance
Rental car insurance is divided into two major coverage categories and a few miscellaneous types of coverage. The two major categories are insurance for damage to others (liability insurance), and insurance for damage to the rental car (collision coverage).
In most cases, your personal auto insurance policy will cover liability insurance. But you'll typically be better off finding collision coverage through a separate policy outside of your everyday car insurance policy.
Liability Insurance
The most important type of rental insurance to have is called “liability” or “comprehensive” insurance. Liability insurance covers the damage you do to other people or other property while driving.
Every state has a legal minimum liability insurance requirement. If you have car insurance, your car insurance will, at a minimum, cover liability to others. Usually, the coverage is a minimum of $50,000, but can go as high as $500,000 per accident. If you are the cause of a car wreck, your personal auto insurance will nearly always cover your liability while you’re driving a rental car.
Of course, it is prudent to read your insurance policy or call your insurance agent to double check. But most people who own a car won’t need to buy additional liability insurance while driving in the United States or most international locations.
If you cause damage to others, you should expect to pay the deductible (often $1,000 or more) before your insurance company will cover the additional damage. However, most “supplemental” or “collision damage waiver” policies don't cover personal liability. So people who don’t have a personal auto insurance policy legally must buy this type of rental car insurance coverage.
Collision Or Damage Waiver Insurance
The second type of rental car insurance coverage is “collision” coverage which covers damage to the vehicle you’re driving. Collision coverage is not legally required in the United States and people with older vehicles often drop the collision coverage on their cars.
If you're someone who has collision insurance on your personal vehicle, that insurance is likely to apply or extend to a rental car too. That said, you’ll need to understand the details of the policy. If you get into an accident, you will certainly have to pay the deductible on your insurance policy. On top of that, there may be limits on the value of a vehicle that is reimbursed.
You will need to clarify that the collision insurance applies to the full value of replacing a rental car. If it does not, you will probably want to get some form of collision damage waiver or primary auto rental collision coverage.
In my experience, collision coverage from a rental company is often overpriced. It's not uncommon to be charged $17-$25 per day to cover a basic sedan. However, this is coverage you can get for free through certain credit cards or for $6 to $10 per day through a third party insurance company.
Related: How To Make Money With Your Car
Miscellaneous Coverage
Certain auto insurance policies cover medical expenses that you or your passengers incur. This type of coverage can be useful when travelling abroad where US based health insurance isn’t useful.
Most of the time, the medical coverage from your personal auto-policy will apply when you’re abroad. Another type of miscellaneous rental car insurance can cover your personal property if it's stolen from your rental car.
How Each Type Of Rental Car Insurance Performs In Different Situations
When it comes to figuring out whether rental car insurance is worthwhile, it's important to understand how it works in various situations. Below are some common mishaps and how various rental car insurance types hold up.
You Cause Damage To Others While Driving A Rental Car
Personal Comprehensive (Liability) Coverage
When you have a personal comprehensive (liability) auto insurance policy, you will file a claim through your insurance company. The company will assess the damage and pay out the claim to the injured person. You will have to pay your deductible and you can expect your insurance rates to rise in the future.
Related: 6 Ways To Save On Car Insurance
Coverage Purchased Through The Rental Company
When you buy liability insurance through the rental company, it will take care of filing the claim and making sure it gets paid. Just be sure that you talk to the car insurance company as soon as the accident takes place. In most cases, you will not have to pay a deductible.
Coverage Purchased Through A Third Party
Most of the time, third-party insurance only covers damage to the rental vehicle. It will not cover damages to other people or property. For example, the third-party insurance companies we discuss below and the credit cards we recommend only offer collision coverage. They will not cover any damage to other people or their property.
In the rare case that you purchased temporary third-party liability insurance, file a claim. The insurance company will pay the claim. It may report the claim to an insurance reporting database, which could raise the rates you pay for car insurance in the future.
You’re In An At-Fault Accident That Damages The Rental Car
Personal Collision Coverage
Coverage related to rental cars will vary on a policy-by-policy basis. In most cases, your insurance will cover most or all of the cost of repairing the vehicle.
If the vehicle is completely totaled, you may have to cover some amount of the cost of replacing the vehicle since your policy may have limits on the amount of collision coverage. You will, however, have to pay the deductible on your policy and you should expect your rates to increase.
Collision Coverage Purchased Through The Rental Car Dealership
If you bought the collision damage waiver, the rental car company will cover the full cost of repairing or replacing the vehicle. You won’t need to file a claim (except for the process required by the rental car company) and your insurance rates aren’t likely to increase.
Primary Rental Car Insurance Provided By A Third-Party
When you have primary collision coverage through a third party, you will need to document the damage and file the claim through your insurance company. If the primary insurance is provided through a credit card, you should be able to find the information on your credit card provider’s website.
With primary coverage, the insurance company pays for 100% of the damages. That said, the rental car company may not work nicely with these insurance providers. The contract for insurance is between you and the insurance company, not between you and the rental car company.
The rental company may try to get you to pay for the damages. If this happens, you'll have to fight for the reimbursement yourself. If you opt for third-party insurance, it's critical to document all damages and carefully follow the claims process.
Secondary Rental Car Insurance Provided By A Third Party
Many travel credit cards offer secondary auto-rental collision coverage. When you have secondary coverage through a credit card, you first file a claim through your primary insurance. Once your primary insurance pays it’s legal obligation (and you pay your deductible), the credit card insurance steps in to cover any gaps in insurance.
While it’s nice to have secondary insurance (for worst-case scenarios), you'll have to file claims with both insurance companies. And your normal insurance rates are still likely to rise. What you really need is primary collision coverage, either through a credit card, another third-party, or the car rental company itself.
Your Personal Property Is Stolen From A Rental Car
Rental Car Company Policies
Most rental car companies will cover “personal effects” if you buy the company’s total insurance coverage. If a thief breaks in and steals your laptop, the rental car company will pay to replace it. However, you will have to file a claim and may have to jump through a few hoops to get your money.
Other Rental Car Insurance Policies
Most other car insurance products do not cover personal effects. However, your homeowners insurance or renters insurance may cover stolen goods even when they are stolen away from home.
But you will have to pay the full deductible (often a few thousand dollars for home insurance) and your home insurance or rental insurance rates may increase in the following year. Unless you have extremely valuable items stolen, paying to replace them yourself will probably save you the most money in the long run.
The Best Places To Get Rental Car Insurance Coverage
Now that you understand the pros and cons of the various types of rental car insurance, it's time to discuss where to find the policy that you need. Below we discuss the four primary ways to get insurance coverage for a rental car.
Your Existing Car Insurer
If you have collision coverage on your vehicle, and the policy extends to rental cars (with no limits on the value of replacing a vehicle), your everyday insurance policy can cover your rental car. These are our favorite car insurance companies.
That said, you may want to still try to obtain secondary insurance from a credit card. Secondary rental car insurance coverage is commonly-included in travel cards' benefits packages and could help to cover any coverage gaps.
Rental Car Companies
When you rent a car, you can pay for a collision damage waiver. This completely covers you if the car is damaged or stolen, and it has the least hassle. The price tag is often hefty and, in most cases, not worth the money. Most of the time, you should seek out other options.
However, If you’re ever using other people’s money to rent a car (for example, an employer needs you to travel), it's probably safest to just use the insurance provided through the rental car company.
Credit Card Issuers
A lot of travel credit cards advertise rental car insurance, but only a few cards deliver it. One notable exception to this rule is the menu of Chase-branded travel cards.
The Chase Sapphire cards, the Chase Southwest Airlines Card, and the United Airlines Explorer Card all offer primary rental car coverage.
While all of these cards come with annual fees, the rental car coverage is a valuable perk for anyone who rents a car at least a few days per year. Compare cards here.
Third-Party Insurers
Allianz Global Assistance, Sure, Bonzah and Insure My Rental Car all offer primary collision coverage for just a few dollars per day. In most cases, the cost of insuring the car is less than half what you would pay at the rental car dealership.
If you do not qualify for insurance through your main car insurance or a credit card, you may want to look to one of these companies.
Should I Ever Skip Rental Car Insurance?
Rental cars are typically newer cars and you agree to pay for the vehicle if there are damages to it. In a worst-case scenario, you could be on the hook to pay for the total replacement of a $35,000-$50,000 new vehicle.
Very few people are wealthy enough to handle self-insuring a rental car. We recommend having some form of rental car insurance whenever you rent a car. Your everyday insurance policy may work (if you have collision coverage and the collision coverage extends). But if you plan to rent a car that has a much higher value than your personal can, obtaining a separate policy could be a smart move.
For people with established credit, primary auto-rental collision insurance from a top credit card issuer is both cost-effective and sufficient. Those without coverage from a credit card will generally want coverage from a third-party for the least expensive auto rental coverage solution.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
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