Understanding rental car insurance

Car rental is used for various reasons. Some people prefer them for road trips, take them with them after flying to new cities, or need them while their own car is waiting or being repaired. Either way, you want to be physically and financially protected while on the road.

The insurance covers the cost of damage that may occur. However, the extent to which conventional car insurance providers cover scratches on a rental car varies. In addition, many car rental companies have their own processes for purchasing insurance and differ in how they approach outside insurance. Know the ins and outs of the 4 types of rental car insurance to determine if you need it for your next trip.

Rental car insurance

Car rental companies usually offer 4 types of insurance on the counter. This is usually more expensive than other options and sometimes even more than the car itself. Despite the cost, this protects you from many unexpected expenses that you may face if something happens to you and your rental car. View car rental options:

1. Liability insurance. Liability will protect you if you harm someone or damage their property while driving your rental car.

2. Collision Damage Disclaimer (CDW). A CDW (or LDW, Damage Waiver) does not technically qualify as insurance, but buying this waiver will usually cover the cost of repairs after damage. This tends to be expensive, and often costs more per day than the car itself. This document protects you from paying:

• Damage repair. CDW covers the cost of damage to a vehicle, whether minor or major, with a few exceptions such as tire damage. It also does not cover damage caused by driving on dirt roads or speeding.
• Loss of use. This is calculated as a potential loss of income while the car is in the repair shop, despite the number of other cars available that the company has. Often your own insurance policy will not cover these costs.
• Towing. If the car cannot be brought back to the drop station, CDW will take care of the cost of a tow truck.
• Reduced value. Rental cars usually sell their cars for two years. “Reduced value” is the loss of potential resale value due to damage you caused.
• Administrative fees. These fees vary depending on the claims process.

3. Covering personal items. This covers the cost of personal items such as a mobile phone or suitcase stolen from a rental car. If you already have homeowners' or renters' insurance, loss of personal property, even in a rental car, may already be covered.

4. Accident insurance. If you and your passengers are injured in a rental car accident, this can help pay for medical bills. Your personal car insurance may include medical coverage or injury protection in the event of an accident with your rental car. Such accidents may also be covered by your health insurance costs.

Other insurance options

If you choose not to purchase rental car insurance while renting a car, other insurance companies may cover liability, damage to the car, lost or stolen items, or accident-related costs, depending on the policy. What CDW covers may differ from what your provider is willing to cover. In addition, you may have to wait to recover any expenses otherwise covered by CDW.

You can avoid the high cost of car rental company insurance by:

Personal insurance: This includes car insurance, health insurance, homeowners insurance, etc. from the insurance company of your choice. This may be limited to certain states, but could potentially cover anything that the rental company offers to cover at a different price. This includes but is not limited to:

• Comprehensive coverage: to repair damage to the rental car as a result of danger, theft or natural disasters.
• Collision coverage: help pay for damages from a collision with another vehicle or object. This may not apply to everything listed in the CDW.

Credit card insurance: Some credit card providers offer auto and rental car insurance if you rent with this credit card. Check with your credit card issuer before assuming that it will cover all possible costs associated with damage to a rental car. It may not cover reduced cost or administrative costs.

Third party insurance: You can rent a car through a travel agency that gives you the option to buy collision insurance at a relatively low cost per day. However, this does not include everything and you may have to pay out of pocket for damages later.