How Does Rental Car Insurance Work?

Quick Answer

Rental car insurance covers the cost of a stolen or damaged rental car. You can also buy rental car insurance to cover legal liability, medical or personal injury expenses, and belongings stolen from your rental car.

A small group of friends getting their luggage from the trunk of the minivan they have rented whilst holidaying in Toulouse in the South of France. They have arrived at their holiday villa on a bright summers day.

Before you hit the road in your rental car, you're typically given the option to buy insurance. Rental car insurance provides coverage if your rental car is damaged or stolen and may also cover medical bills after an accident or stolen personal belongings. You might not need rental car insurance if your personal auto insurance, homeowners insurance or health insurance covers these risks, however.

How Does Rental Car Insurance Work?

Although specific coverage offered may vary depending on the rental car company and location, rental car insurance usually offers these types of coverage:

  1. Loss damage waiver (LDW) coverage waives you from financial responsibility for the rental car if it's stolen or damaged. Sometimes called a collision damage waiver (CDW) or damage waiver, it may be voided if you cause an accident by driving under the influence, driving on an unpaved road or speeding. If your personal auto insurance includes collision and comprehensive coverage, check to see if this coverage extends to rental cars. If so, you can generally decline the LDW.
  2. Supplemental liability insurance increases your liability insurance beyond the state minimum requirements that rental car companies must provide. You may not need this if the liability coverage included in your personal car insurance covers rental cars.
  3. Personal accident insurance pays medical and ambulance expenses for you and your passengers if you're injured in an accident while driving the rental car. You may already be adequately covered by your health insurance or if your personal auto insurance includes medical payments coverage for rental cars.
  4. Personal effects insurance covers personal belongings that are stolen from the rental car. You may not need this if your homeowners insurance or renters insurance protects personal possessions when outside your home.

How Much Does Rental Car Insurance Cost?

The cost of rental car insurance varies depending on a variety of factors, including:

  • Value of the rental car
  • Amount of coverage provided
  • Type of coverage you choose
  • Location where you rent the car

In general, CDWs/LDWs are the most expensive type of rental car insurance, averaging between $30 and $35 per day. Supplemental liability insurance typically costs about $15 per day, while personal effects and personal injury coverage generally cost about $7 per day.

Add it all up, and you could easily spend close to $60 per day on rental car insurance, significantly increasing the cost of renting a car.

Does My Car Insurance Cover Rentals?

When you rent a car in the U.S. or Canada, your personal auto insurance generally covers the rental car. Be sure to confirm your coverage and its limits before renting a car so you can purchase rental car insurance if necessary.

Standard car insurance policies typically include:

  • Liability coverage for medical costs if you cause an accident that injures people in other cars. Liability insurance also pays for damage you cause to another person's property.
  • Medical payments coverage pays medical expenses for you and your passengers if you're injured in an accident. Personal injury protection (PIP) insurance goes a little further, covering other expenses due to a car accident, such as lost wages, in addition to medical costs.
  • Collision insurance pays to fix or replace your car if it's damaged or destroyed by a collision.
  • Comprehensive insurance pays to repair or replace your car due to theft, vandalism or damage not due to a collision, such as a tree branch falling on the vehicle.

Do You Need Rental Car Insurance?

Although your personal car insurance likely covers rental cars, it may be wise to purchase rental car insurance if:

  • You don't have car insurance. If you don't own or have access to a car, you could buy non-owner car insurance before renting a car. However, unless you frequently drive rental cars, purchasing rental car insurance is usually a simpler way to go.
  • Your car insurance doesn't include comprehensive or collision coverage. If you own an old car that's not worth much, you may have dropped collision and comprehensive coverage. In that case, you'll need rental insurance to ensure your rental car is protected.
  • You want to avoid filing a car insurance claim. Are you worried that filing another insurance claim will raise your premiums? Avoid this risk with rental car insurance.
  • Your car insurance has a high deductible. Buying rental car insurance could be more cost-effective than potentially paying a $1,000 or $2,000 deductible.
  • You're renting a car that costs more than your own car. Auto insurance sufficient to cover your 2005 Toyota Camry won't be enough for a 2024 Porsche convertible you're renting for a weekend.
  • You'll be driving outside the U.S. or Canada. U.S. car insurance generally extends to Canada, but not to driving elsewhere outside the country, such as Mexico.

Some credit cards offer rental car insurance as a benefit for cardholders. Credit card rental car insurance typically won't cover medical payments or liability, but usually pays for:

  • Damage to the rental car due to a collision
  • Theft of the rental car
  • Towing charges
  • Loss-of-use (the money the car rental company loses while the car is unusable)

Generally, credit card rental car insurance is secondary insurance. You file a claim with your car insurance company (your primary insurance) first and then use the credit card insurance to pay any expenses your car insurance didn't cover, such as your deductible.

You can also find credit cards that provide primary rental car insurance, which might eliminate the need to file a claim with your auto insurance. You can activate credit card rental car insurance by using the card to pay for the rental and declining the rental car company's insurance.

How to Get Rental Car Insurance

You can generally buy rental car insurance from the car rental company ahead of time when you reserve your vehicle. Not sure of your decision yet? You can wait until the last minute and buy rental car coverage when you pick the car up. Even if you don't plan to buy rental car insurance, it will typically be offered at the time you get the car.

You can also purchase rental car insurance through third-party car insurance companies. Allianz, Bonzah and RentalCover are among the companies that sell insurance for rental cars. Unlike the insurance sold by rental car agencies, however, you'll need to buy third-party rental car insurance before you pick up your vehicle.

The Bottom Line

Before heading off on your trip, take some time to investigate what kind of rental car coverage your personal car insurance and credit cards offer. Taking advantage of the protections you already have can help you safeguard your rental vehicle without buying rental car insurance you don't need.

Whether you have travel plans or not, it's a good idea to review your auto insurance regularly to make sure you've got the right coverage at the best price. At least once a year, compare quotes from auto insurance companies. Switching to lower-priced car insurance can free up your budget for more exciting things—like travel.