Who Needs Rental Car Insurance?

March 9, 2022

Those who live in the Tri-State area typically use cars as our preferred means of transportation and carry automobile liability insurance on our vehicles. When traveling and renting a vehicle for personal use, we may decline the vehicle insurance offered by the rental car company because our personal auto insurance covers rental vehicles.

What about your adult child who lives in Chicago or New York and doesn’t own a car, as is the case with my daughters? They may rent a car to visit home or rent a car in the Tri-State area. Perhaps you, as the parent, always handled the auto insurance when they lived at home. Does your adult child understand that they need certain types of insurance before driving that rental car?  How much insurance do they need? This article also applies to a driver who only has a company car or who does not have comprehensive and collision coverage on their vehicle.

Insurance Sold by Rental Car Companies

Rental car companies typically offer the following types of rental car insurance for travel within the United States and Canada (but not Mexico):

  1. Collision/Loss Damage Waiver
  2. Liability coverage, also called Supplemental Liability Insurance or SLI
  3. Personal effects coverage
  4. Personal accident coverage

Collision/Loss Damage Waiver:       

A collision/loss damage waiver (also known as an LDW or CDW) isn’t technically insurance. With this waiver, the rental car company won’t pursue you for repairs and losses, including the rental company’s loss of use of the car while it is being repaired. The waiver typically does not cover damage from gross negligence, speeding, driving on unpaved roads, or driving while intoxicated and typically does not cover lost, damaged, or stolen keys/remote entry devices, towing, or tire damage (unless related to an accident). The cost for this damage waiver varies by rental car company, with costs between $20 to $37 a day. Please note that if you ask a rental car agent for “insurance” at the rental counter, you will likely be offered the collision/loss damage waiver but not liability coverage as described below.

If you rent a car through one of the big online travel agencies such as Expedia or Priceline, the agency may offer you the option to buy “collision coverage” for around $10 a day. Coverage is provided by a third-party insurance company such as Allianz. The cost is a lot less than from the rental car company, but if you damage the car, you have to pay the rental company upfront for the damages to the vehicle then file for reimbursement under the policy.

Liability Coverage/Supplemental Liability Insurance:

This insurance covers you if you damage other vehicles, persons, or property while driving the rental car. By law, rental car companies must provide the state-required minimum amount of liability insurance coverage on the rental car.  In Ohio, Kentucky, and Indiana, the state-required minimum insurance is:

  • $25,000 for all claims for bodily injury/death of one person,
  • $50,000 for all claims for bodily injury/death for all persons as a result of any one accident, and
  • $25,000 for property damage (to other’s property) as a result of any one accident.

If you are not comfortable carrying only the state-required minimum amount of liability insurance, Supplemental Liability Insurance provides the renter and authorized drivers with up to as much as $1,000,000 combined single limit for third-party liability claims. If the renter obtains SLI, the rental car company provides third-party liability protection up to the applicable state-required minimum, and an insurance company provides excess third-party liability insurance coverage from the applicable minimum to up to the policy limit. The cost for this coverage varies by rental car company, with costs between $14 to $16 a day. This is a small price to pay for this much peace of mind.

Personal Effects Coverage:

Personal Effects Coverage may help cover your personal belongings, such as your laptop or clothing if stolen from the rental car. This coverage costs around $6.00 to $7.00 a day but may be unnecessary. If you have renters or homeowners insurance, the personal property coverage on that policy typically helps cover your personal items through what’s known as “off-premises coverage.” 

Personal Accident Insurance:

Personal Accident Insurance is typically sold together with Personal Effects Coverage. Personal Accident Insurance helps pay your and your passengers’ medical bills if you are injured in a rental car accident.

Insurance Offered Under Credit Cards

You may be asking – what about the rental car insurance offered by my credit card issuer?  Many credit cards provide “free” collision coverage for car rentals, provided you use the card to pay for the rental. A few premium credit cards offer primary collision coverage, meaning the card takes full responsibility for the payment. But coverage on most cards is secondary, meaning if you have your own auto insurance, the card picks up only what you can’t first recover from your own insurance. Also, you still have to pay the rental company upfront for the damages to the car, then file for reimbursement from your card issuer.

When to Get Additional Rental Insurance

Even if you have an automobile policy, you should consider getting insurance from the rental car company in the following instances:

  • Your current policy doesn’t have comprehensive and collision coverage (e.g., due to the age of your car),
  • You are only insured under a commercial car insurance policy and/or
  • You don’t want to risk paying a high deductible on your own policy

Also, if you are driving a rental car abroad (apart from Canada), your current car insurance probably won’t cover you. Check your policy to find out.

Family Member or Friend Driving Your Car

A final issue to consider is whether a family member or friend driving your car is covered by your auto insurance policy. If an uninsured family member is visiting and has permission to use your vehicle, your auto policy should cover any accident caused by that person. Also, a friend driving your car with your permission should be covered by your auto policy. This assumes the family member’s or friend’s license is not revoked or suspended, and they are not listed as an excluded driver on your policy. Most insurers advise that you check with them regarding coverage for anyone driving your car not specifically named on the policy. Some policies may not extend full coverage to someone not named as a listed insured on the policy. Also, if you are using a small, low-cost insurer, your insurance may not extend to anyone other than the policyholder.

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About the Author

Fern Goldman

Fern Goldman

Fern Goldman has extensive experience representing clients in real estate, commercial, and corporate transactions.

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