Rental Car Insurance: Should You Buy It?

You just landed, happy to start your vacation or anxious to make it to a meeting, and head over to claim your rental car. But before you snag your ride, you must face a barrage of questions about insurance coverage.

As with your own car, when renting you need adequate insurance coverage for damages to the vehicle and other cars, theft, and injuries to others. So, should you buy the plans rental companies push? The short answer: If you already own a car, your personal auto insurance policy already protects you from the biggest risks when renting, so the plans offered by rental agencies mostly duplicate what you’re already paying for.

Don’t own a car? Traveling abroad? Want total peace of mind? Here’s how to avoid hassles and save money.

Coverage Sold by Rental Companies Is Too Expensive

I recently rented a compact car from Budget. The base price was $36 per day (plus $26.50 a day for taxes and the usual jumble of fees).

Adding Loss Damage Waiver coverage (shifts financial responsibility from me to the rental company if the car is damaged or stolen) would cost an extra $30.99 per day. For another $18.32 a day, I could add Supplemental Liability Insurance (covers injuries to others). Personal Accident and Effects coverage (pays for injuries to passengers in the car and damage to our belongings) would be another $9.95 a day.

So, Budget’s price for “full coverage” was $59.26 per day—almost as much as the cost to rent the car.

These fees are typical: I checked rates with other major agencies and was quoted prices ranging from $27 to $42 per day just to cover damage to the car; liability coverage added $13 to $16 a day.

Some perspective: If your personal auto insurance company were to charge $59/day for your policy, which provides similar protections, you’d pay $21,535 per year.

Why do so many customers get rental car insurance? In part, rental companies don’t provide much useful advice. Their websites list brief descriptions of available coverage (“Basic,” “Standard,” “Complete”), and don’t mention that, if you have a personal auto insurance policy, you already have similar coverage. Want details? Most websites instruct customers to ask at the rental counter.

Another problem: Most rental car agents are pushy; some are dishonest. I rent cars 30 to 40 times a year and usually get a hard sell. They say, “and you’ll want full protection,” as if it’s standard, not optional. Decline all coverage and they’ll usually warn: “So you will be taking full financial responsibility for the car?” which, again, isn’t true, since I already pay for an auto insurance policy. I’ve even overheard agents lie to confused customers by telling them coverage is required by law. It’s clear rental companies coach their reps to sell the coverage.

Your Personal Auto Insurance Policy Protects You When You Rent

If you are covered as a driver under your family’s personal auto insurance policy, and it includes collision and comprehensive coverage, it will pay claims for physical damage to cars you rent in the U.S. Similarly, when you rent a car, the liability coverage offered by your personal auto policy covers you for injuries to others.

But your personal auto insurance policy probably won’t apply to car rentals outside the U.S. and Canada. And your auto policy is unlikely to cover any rental car for more than a month.

If you are an employee driving a rental car on company business, your employer’s auto insurance policy might provide coverage—but only if your employer has paid extra for it. Also, these policies usually cover only liability, not damage to the rental car.

If you rely on your own auto insurance coverage when renting for work and the car is damaged, the company will file a claim with your insurer, which means you’ll pay your deductible and possibly incur a rate hike. Another danger: Few personal policies include loss-of-use coverage for rentals; but, as we discuss below, we don’t think this is a big risk.

Your Credit Card Might Also Offer Extra Protection

If you rent a vehicle using a credit card (most rental agencies now require one), you might get free physical damage coverage—but not liability coverage—from your credit card company. This coverage is standard on many American Express, Mastercard, and Visa cards. (Discover dropped its rental-car coverage perk in 2018.) But keep in mind:

• If you already have an auto insurance policy, the credit card company’s plan is secondary coverage. That means the credit card company first will require you to make a claim with your personal auto insurer; most drivers then will get reimbursed for remaining out-of-pocket costs (deductibles).
• You must decline the rental company’s physical damage coverage.
• You must use the credit card to pay for the rental.
• Certain kinds of losses (theft of personal belongings, tire damage) may be excluded.
• With many cards, coverage does not apply in certain countries. For example, at the time of this writing, Visa did not extend its coverage for rentals in most of the Caribbean, Central America, Mexico, or South America.
• Coverage does not apply to certain types of vehicles. It usually excludes RVs, motorcycles, vehicles designed to carry more than eight or nine passengers, vehicles with fewer than four wheels, and trucks (even pickups).
• Losses due to off-road driving are not covered, including when driving on any surface other than asphalt or concrete—a possible problem if you take a rented SUV over dirt roads to reach a trailhead or campsite.
• Coverage is typically limited to rentals that last no more than a month. You can’t avoid these limits by returning the car and renting it again.
• Coverage usually is limited to a maximum amount—$50,000 is common.

The Loss-of-Use Gap

When rental companies blame their customers for damage to their cars, they make them liable not only for the cost of repairs, but for the theoretical rentals the company can’t make while the vehicles are out of commission.

These penalties are usually excessive. For example, you might rent a car for $50/day, but the rental company might charge you a “rack rate” of $125 or more for each day it takes to repair the vehicle—even though the company rarely charges that full rate and may not even repair the car.

Some states—so far, California, New York, and Wisconsin—have banned loss-of-use charges for car rentals.

Your personal auto insurance policy might not cover “loss-of-use” charges rental car companies enforce—although insurers are increasingly adding this protection. Many credit cards provide loss-of-use protection but, again, it’s secondary coverage to any personal auto insurance policy.

Physical damage coverage from rental car companies covers loss-of-use penalties, but we advise most drivers to decline it anyway.

Paying an extra $30 to $40 per day to cover the unlikely risk of losing $125 or even $200 per day doesn’t add up.

International Rental? Find Out What’s Already Covered by Law

Although your personal auto policy won’t cover you when you drive abroad, local laws often require companies to maintain high levels of insurance coverage for all customers. For example, the European Union requires companies to carry at least €1 million of liability insurance on all their vehicles. In other countries, most rental agencies include robust insurance coverage in their rental rates. For example, in Thailand, Hertz’s daily rates include coverage for damage to the vehicle and more than $300,000 in liability coverage.

If you’re offered optional coverage when renting abroad, check what you’ll get. Often, the extra fee adds little benefit—for example, it might increase liability coverage from $20,000 to only $40,000.

Don’t Have a Personal Auto Policy? Buy Inexpensive Coverage from a Third Party

For less than $20 a day, companies like Allianz and Travel Guard offer primary insurance policies for rentals. If you don’t own a car, it’s worth considering one of these plans, rather than paying what are usually higher rates offered by the rental companies. But note that these policies don’t include liability or loss-of-use coverage.

You can get similar coverage for usually less than $15 a day from travel booking websites (Priceline, etc.), which offer standalone coverage through third-party insurers.

If you don’t own a car, you can also buy a “non-owners” auto insurance policy for rentals, which offers the same coverage types and limits that you’d get if you owned and insured a car. Because these policies aren’t cheap, buying one makes sense only if you rent often.

If you’re an American Express cardholder, consider enrolling in its “Premium Car Rental Protection” program. For a flat fee of $17.95 for each rental you charge to your card, you get primary insurance that covers:

• Up to $100,000 of coverage for damage to, or theft of, the rental car.
• Up to $250,000 of accidental death and dismemberment coverage.
• Up to $15,000 per person for accidental injury expenses.
• Up to $5,000 per person for personal property damage.

American Express also offers a $15.95 per rental option that provides somewhat lower coverage limits.

Apart from providing primary insurance, the American Express program is a better deal than what the rental companies offer in that you pay a (fairly low) price for each rental (for up to 30-42 consecutive days, depending on the state). The rental companies typically charge $30 or more per day. So while the American Express fee for a one-day rental is not only less than what most rental companies offer, it’s a good deal for longer durations.

Keep in mind that while there is no fee to enroll in the program, once enrolled, you’ll automatically pay for the coverage whenever you rent. (You can, of course, avoid the fee by using a different credit card to rent.)

Avoiding Problems with Bogus Damage Claims

Consumer protection agencies receive thousands of complaints each year about car rental agencies charging their customers for damage they didn’t cause. I’ve found that some drop-off locations (I’m looking at you, Enterprise at Philadelphia International Airport) often seek to blame me for tiny scratches and dents that existed when I picked up elsewhere. Rental agencies in Europe usually track every little nick—and blame customers for new ones.

To avoid problems:

• Inspect your car carefully when you pick up, looking for scratches and dents. Check especially the front air dam, rear bumper, and side mirrors; then inspect the interior for tears and breakage.
• If you find any damage, point it out to a rental company agent and document it with a pic. If they tell you the damage is too minor to worry about, take a pic anyway.
• If at drop-off you are accused of damage you know you didn’t cause, ask to speak with a supervisor and insist that you’re not responsible. I’ve had to do this several times, but it’s far better to take care of it right away than later on, once the rental company has opened a damage action.
• Get charged for damage you didn’t cause? Ask the company to prove it with time-stamped photos. Ask for a record of rentals after you dropped off the car—if other rentals occurred, it’s possible another driver or the company itself caused the damage. Provide any proof you have (photos, inspection notes) that you didn’t cause the damage.
• If you’re certain you didn’t cause the damage and the company is unresponsive, dispute the charges with your credit card company.