Is Rental Car Insurance Worth it?

You are at the rental counter, ready to sign and drive your rental car to your favorite vacation destination when the attendant asks the dreaded question: “Insurance blah blah blah?”  She makes it sound like armageddon if you don’t buy the rental car company’s insurance.  But you thought your agent said you had coverage? Why is this so confusing!?  Fret not. We will break it all down for you here.

Before we get into which coverages rental car companies offer and what you may want to purchase, it’s important to understand what your personal auto insurance policy covers and what the rental car company’s insurance options entail. In this article, we’ll break down the different types of coverage and help you determine if you need to purchase additional insurance for your rental car.

Most insurance policies will extend the coverage included on your personal vehicles to the rented car for up to a 30-day period. So the key question becomes, does your personal auto policy include all of the coverage you want for the rental car? To answer that question, let’s look at a few key personal auto insurance coverages.

Key Car Insurance Coverage

Liability, collision, and comprehensive coverage: These are the three main coverages available on car insurance policies. 

• Liability insurance provides protection if you damage someone else’s property or injure them in an accident. 
• Collision insurance coverage protects your vehicle if it’s involved in a collision 
• Comprehensive insurance coverage covers damage to your vehicle caused by things like theft, vandalism, or natural disasters.

Towing or Roadside Assistance covers the cost of a tow or other roadside assistance.

Rental Reimbursement pays for the cost of a rental car if your vehicle is damaged in a collision or comprehensive claim.

With the exception of Rental Reimbursement coverage (sometimes known as Loss of Use), if you have any of the coverages outlined above, they should extend to your rental car for a period of up to 30 days. 

So when determining whether or not you need to purchase insurance from the rental company, first confirm you have the coverages above.  If you do, chances are your need to purchase insurance from the rental car company is relatively limited.  So what is rental car Insurance and what does it cover?

Key Coverages Offered by Rental Car Companies 

Supplemental liability insurance: This coverage provides additional liability protection beyond the minimum required by the state.  Unless you have low liability limits on your personal auto policy, you should not need this coverage.  If you have state minimum limits on your personal auto policy, the rental car company may require that you purchase this additional coverage to meet the requirements in the state they are located in or their own corporate guidelines. 

Loss damage waiver (LDW)/collision damage waiver (CDW): This is not insurance, but functions similar to comprehensive and collision coverages described above.  The advantage of purchasing this “insurance” through the rental car company is that it includes loss of use and also protects you against diminution of value.  These are the two key coverages that most personal car insurance policies are not going to cover.  Most rental car companies will charge you for the loss of use of the rental car while it is in the shop being repaired. Most personal auto policies will not cover this expense, but LDW / CDW provided by the rental car company will. The rental car company may also charge you for the diminution of the value of the rented vehicle.  Even if it is repaired, the value of the vehicle may be less than it was before the accident, simply because it has been in an accident.  Just like the loss of use coverage, most personal auto policies will not cover this cost, but LDW / CDW through the rental car company will. If you have comprehensive and collision coverage on the vehicle you own, and it extends to your rental car, purchasing an LDW or CDW can be duplicative. 

Personal accident insurance: This coverage pays for medical bills for the driver and passengers in the event of a car crash. This is always nice to have. The question I would ask is, how would you be paying for those medical bills in the event you were driving your own car? The answer is probably a combination of your health insurance and medical payments or “PIP” coverage (depending on your state) included on your personal auto policy. I’m a huge advocate of making sure we have enough of the right insurance, but when considering this coverage, the question I ask myself is “I drive my own car every day and could be injured in a car accident. I have health insurance to pay for that situation.  Why should I pay a rental car company for Personal accident insurance while I’m on vacation if my standard health insurance policy will also cover me if I’m in an accident while driving my rental car?

Personal effects coverage: This covers your personal belongings while located in the rental car.  Although endorsements adding it are becoming more common, traditionally most standard personal auto insurance policies did not provide this coverage.  That begs the question of why I should purchase this coverage specifically for the period I’m driving a rental car.  If traveling with valuable luggage, it’s an option to keep in mind.   

Does Your Credit Card Provide Rental Car Insurance?

My preferred insurance plan when renting a vehicle is a combination of the coverage included on my personal auto policy, and coverage provided by my credit card company - in my case American Express. Many card companies include or offer for a fee, coverage for rental cars.  With most rental car coverage offered through credit card companies, you have to deny the rental car company’s insurance for it to be activated.  There may be other process requirements to activate your coverage.  Exactly what coverage the credit card company provides and what is required to activate it can vary widely, so it’s important to call your credit card company to get clarity ahead of time. 

The last time I used my American Express card for a rental car, for example, I had to have their rental car protection program turned on before renting the car. As long as it was on and I paid for the car with my American Express credit card, they automatically charged my card a one-time $30 fee which provided comprehensive, collision and loss of use coverage with no deductible. Even though my personal auto policy would have provided the comprehensive and collision coverage, I preferred to use my American Express and pay the $30, because I was able to pick up the loss of use coverage and all coverages came included with no deductible, vs the $500 deductible on my personal auto policy.  

In summary, assuming you have a standard auto insurance policy on a vehicle you own, that includes liability, comprehensive and collision coverage, the decision to purchase coverage through the rental car company or not really comes down to 3 key questions:

1. Are you concerned about loss of use and diminution of the value of the rental car? We take risks every day. This one is reasonably large… it could end up costing you thousands of dollars if you are in a serious accident and don’t have this coverage. If the answer is yes, ask yourself the next question:
2. Does your personal auto policy include loss of use and diminution of value coverage for the rental car? If so, you shouldn’t have any need for insurance from the rental car company.
3. If your policy does not include loss of use and/or diminution of value coverage, can you pick this coverage up through your credit card cheaper than you can through the rental company?
4. If your credit card company does not offer these coverages, then purchasing through the rental company is going to be your best bet.

I hope this article helps you navigate the rental counter with confidence on your next trip! If you have any questions, don’t hesitate to reach out to a member of the Camargo Insurance team!