You already know that you need car rental insurance, but may be wondering which option is the best.
There is no easy answer to this since there’s a lot to consider to make sure that you’re getting fully covered. At the same time, you don’t want to be duplicating any coverage that you already have.
To help you decide, we’re going to discuss the pros and cons of the top four car rental insurance options:
- Car rental company Collision Damage Waiver (CDW)
- Personal auto insurance with car rental coverage
- Credit cards with car rental insurance
- Third-party car rental damage and liability insurance
Car Rental Company Collision Damage Waiver (CDW)
A car rental company's collision damage waiver (CDW) covers damages to a rental car. It is also sometimes called a loss damage waiver (LDW). Buying the CDW is optional, and the cost of the waiver varies based on the model of the rental car and the location you’re renting it out.
While technically not an insurance policy, a CDW releases you from any financial responsibility for anything that happens to your rental vehicle. That includes covering for the cost of repairs to the rental car if it's damaged in a collision or if gets lost or stolen. This applies, of course, as long as you didn’t violate the conditions of the waiver and the rental agreement.
Pros/ Advantages:
- - You don’t have to worry about your own insurance policy
- - You don't have to pay a deductible
- - The car rental company will usually provide a replacement car if your rental car is damaged in an accident
- - When you buy this option you are covered for any damage to the rental vehicle without having to make a claim with a credit card or insurance company. You can return the as a wreck and just hand the keys back (provided you wrecked it within the terms and conditions of the rental i.e. not drunk etc)
Cons/ Disadvantages:
- - Rental companies are notorious for charging an arm and a leg for their coverage option, i.e. up to $30-40 a day
- - CDW only covers damage to the rental car itself and not any other property that may be damaged in an accident. So if you cause an accident that damages another car or some other property, you could still be on the hook for those costs
- - If you already have car insurance, chances are you’re already covered for most if not all of what the rental company offers.
Before you decide whether or not to purchase a CDW, check your own auto insurance policy to see if it provides coverage for rentals. Some credit card companies also provide this coverage if you use their card to pay for the rental. If you have any questions about your coverage, ask your insurance agent or call the rental company.
Auto Insurance Policy with Rental Car Coverage
If you have your own auto insurance policy, it may provide some coverage for damages to your rental car and those you cause to other vehicles that while operating a rental car. So when you book your car, you can choose to forego the Collision Damage Waiver offered by the rental company.
However, your policy may have limits on the amount of coverage that is available. There are also some things to keep in mind when it comes to auto insurance and car rental. For example, most basic policies won't cover damage to tires or windows unless they’re from an accident. You would need to have comprehensive coverage for this.
Pros/ Advantages
- - Your personal auto insurance will cover most rental cars with the same coverage limits and deductibles. For example, if you carry comprehensive and collision coverage on your auto policy, you'll be protected against physical damage to your rental car. Your liability coverage will also apply when you get behind the wheel of your rental.
- - When using your auto insurance policy to cover your rental car, there are no out of pocket expenses. You can simply tell the rental agent at the pickup desk that you have auto insurance that covers you.
Cons/ Disadvantages
- - Most auto insurance policies have a deductible which can be as high as $500-$1500, depending on the policy you have, which can be pretty painful if you have to make a claim. And to add insult to injury, your premium could increase up to 44% if its your first claim. ouch!
- - It’s very likely that your car insurance company won’t pay out more than your coverage limits. So you better watch out if you’re hiring a more expensive model for your rental car.
- - Your car insurance might have additional limitations on how much coverage it will provide for long-term rentals.
Credit Cards as a Rental Car Coverage Option
Most major credit cards offer some form of rental car insurance.
Some of them provide primary car rental insurance. That means if you use these cards to pay for your rental car and damage occurs, the credit card company will reimburse you for damages, even if you have your own personal insurance.
What the majority of credit cards provide is secondary coverage. This means they act as backup insurance and will only pay after your primary coverage - usually your personal insurance - has been exhausted.
In order to get credit card coverage, you would need to decline the Collision Damage Waiver (CDW) from the car rental agency so it’s important to weigh the pros and cons of this option.
Pros/ Advantages
- - It’s complimentary. Many travel credit cards offer rental car insurance as an included benefit for cardholders. Check your card’s guide to benefits for details on limits and coverages.
- - No deductibles. Similar to auto insurance, with credit cards there are generally no out-of-pocket expenses. If you have no other primary insurance then credit card rental car insurance can be an affordable way to cover a good portion of the rental car risk.
Cons/ Disadvantages
- - Unfortunately, not a lot of people realize that credit cards are always a secondary source of insurance. In other words, if you have an accident or loss you will still need to claim on your primary auto insurance policy and risk those cons.
- - The devil is in the detail when it comes to what is actually covered by credit cards. For example, some cards don't cover hail damage, loss of use, or tire damage. Buyer beware.
- - Your credit card's insurance may not cover any damage you cause to others and personal property. For this, you would need liability coverage. It also may not cover bodily injuries that you, your passengers, or any other third party sustained in an accident.
- - Some rental car companies might not provide coverage if you're traveling to certain countries. You might also get declined if you’re using the rental car for extended periods or driving in certain types of vehicles. Some other actions might also invalidate your coverage, such as driving on a dirt road or speeding.
Rental car insurance isn’t offered with every credit card so you have to do your due diligence to make sure that you’re actually covered. Also, be sure to read the fine print to learn the specific policies that your card has for insurance coverage.
Third-Party Car Rental Damage and Supplemental Liability Insurance
Another option if you want to get covered is getting third-party car rental insurance (insurance that’s provided by a third-party insurer). This is best if you find yourself in the following situation:
- - You don’t want to pay the expensive CDW and rental car insurance sold by the rental company
- - You don’t have personal car insurance (or don’t want to use it on your rental)
- - You have coverage from your credit card but are not sure about its policy limits for damage and want to get liability coverage
You usually purchase third party car rental damage and supplemental liability insurance before or right after booking a rental car. Then you just tell the counter that you have existing coverage once you pick up the rental car and try to convince you to get the CDW or their in-house insurance.
Pros/ Advantages
- - Car rental damage insurance offered by companies such as Bonzah.com and Pteet.com have several distinct advantage. Firstly, it's much more affordable than what the rental company offers, coming in at under $12 a day (or even cheaper if buying the annual car rental insurance policy).
- - There is a zero deductible, up to $45,000 in primary coverage, and covers basically any damage reason or loss (incurred while driving within the rental conditions).
- - Additionally, the ability to purchase supplemental liability insurance online (also known as SLI or LIS) is a very convenient option, because you can purchase it along with your damage insurance online, avoiding the hard sale at the rental counter.
Cons/ Disadvantages
- - Third-party car rental insurance generally acts as reimbursement insurance. Depending on the amount of damage, you would be charged by the rental company and the insurance company would refund you those charges. Though, if the damage was say over around $3,000, then the rental car company would deal directly with the insurance.
Best Option for Your Rental Car Insurance Coverage Needs
Insurance coverage is one of the most important things you need to consider when renting a car. It protects you against damage and liability that could arise from unforeseen events.
The best option for your rental car insurance coverage needs will always be the one that provides the most comprehensive protection at the best value. Be sure to weigh the advantages and disadvantages of different options to find the policy that’s right for you.
Note: This article has been updated to reflect more recent industry developments.