Learn when insurance covers rental cars and when you should get rental car insurance at the counter

If you've rented a car before, you might have been surprised at just how many additional options there are apart from simply renting the car. There are upgrades, upsells, add-ons, and of course, rental car insurance. 

At the counter, the agent might suggest that you need this rental car insurance because your existing auto insurance won't cover the rental - but is that true?  Does your car insurance cover rental cars? Is rental car insurance worth it? Should you get rental car insurance? 

As you might have guessed, the answers to these questions can vary and depend on a number of different variables. There's a lot to consider, which is why today we'll discuss it in detail and help you decide what the best option is for you. Read on!

Rental car insurance vs rental reimbursement coverage

Before we discuss rental car insurance and the ways in which your existing personal auto policy (PAP) covers a rental car, it's important to draw a clear distinction between two similar sounding but very different terms: rental car insurance vs rental reimbursement coverage.

Rental reimbursement coverage is a service provided by most insurance companies, and is usually an optional addition to your existing coverage. For an additional premium, your insurance would reimburse you for the cost of renting a supplemental vehicle while repairs are being made to your everyday vehicle.

This is different from rental car insurance, or insurance that covers a rental car while you are in possession of it. When you rent a car, the rental agency will more than likely have one or more optional "policies" or plans that you can purchase for the duration of your rental. On the other hand, most PAP carriers offer at least some coverage that extends to a car you are renting. Today, we'll discuss the offers at the rental car counter and the coverages extended by your auto insurance carrier. 

What does the rental company hold you accountable for? 

First, it's important to understand what exactly you're responsible for when you sign a rental car contract. Most rental agencies have you sign a contract that says you must bring the vehicle back in the same condition. This contract includes a provision that says you are responsible for any damages that occur while the car is in your position and while the contract is active, including theft, weather related events, or "act of God" events. 

But while you may have known that you are responsible for damages done to the vehicle, there are also often fees that may be associated with it as well. Without coverage of any kind, you will be responsible for:

Cost of repairs. The full cost of repairs, or the full face value of the vehicle if it is a total loss.

Loss of use. The amount of money the rental company loses on rental fees while the vehicle is out of service for repair or replacement.

Diminished value of the vehicle. The difference between what the vehicle was worth before the accident and what it is worth after repairs have been made.

Administrative or loss-related expenses. Expenses incurred by the rental company, such as fees for towing, appraisal, and claims adjustment, plus general office expenses for handling the paperwork.

These fees and charges can typically be waived when you purchase what is known as a loss-damage waiver (LDS), or a collision damage waiver (CDW). These are not technically insurance, but instead they release you from the responsibility of having to pay for these damages and fees by removing the provision form the contract under certain conditions. For example, if damage is a result of some illegal activity or reckless driving, those specific conditions wouldn't be covered and you would still be responsible for the damages.

A CDW or LDW can be expensive, sometimes costing more than the rental itself. However, as we will outline shortly, it may be necessary in certain circumstances.

Does car insurance cover rental cars?

Yes, it can - but the answer isn't quite as simple as that. 

Next, we'll look at several different categories and associated offerings at the counter and through your insurance. We'll take a look at each and discuss the offering at the counter, how and if your insurance applies, and what that means for you. 

At-fault crashes, supplemental liability insurance

If someone hits your rental car, their liability insurance should pay for the damages. However, if you cause an accident and damage another vehicle, you would be responsible for paying for the damages to that vehicle.

The liability portion of your PAP should cover the damage done to another vehicle, even in a rental. However, if you only carry the minimum insurance required by law ($25k liability in Texas) you may not have enough.

To address possible gaps in coverage, you may consider speaking with your insurance agent or carrier to purchase more liability coverage. Alternatively, many rental agencies offer supplemental liability insurance (SLI) at the counter. 

SLI is a type of rental car insurance that covers damage you do to another person's vehicle or property. The limits will vary between rental agencies, but usually offer a range of options. If you don't have a PAP, don't think your PAP liability coverage is sufficient, or are in a country where your policy isn't effective, purchasing SLI is probably a good idea. 

Other collisions, damage, and theft

While SLI covers damage you do to others, it does not cover the damage done to the rental vehicle itself. This is where a CDW or LDW would come into effect. If you are responsible for a crash in a rental car, whether you hit another vehicle or a stationary object, buying the CDW or the LDW option at the counter would essentially cover the damages to the rental car. 

For "act of God," damages, weather-related damages such as hail, and theft, you would also be responsible for paying for the loss. Again, a CDW or LDW would cover these scenarios, or rather, they would free you from the responsibility of paying for those damages or losses. 

If the use-cases for a CDW and LDW sound familiar, it's because they cover similar situations that collision and comprehensive auto insurance cover. Collision and comprehensive policies often extend to rental cars, but you'll want to speak to your carrier to make sure that is the case. Even if it does extend to a rental, you will likely still have to pay your deductible.

If you don't have collision and comprehensive, or if your policy does not extend to rental cars, then you may want to purchase a CDW or LDW at the rental counter to ensure that you don't get stuck with a hefty bill should something happen.

Personal effects coverage

A rental agency may also offer personal effects coverage (PEC) as part of your rental agreement. This covers stolen personal belongings held in a rental car up to an agreed upon amount. 

Before purchasing PEC from the rental agency, you may consider checking with your insurance provider to see if your home insurance policy protects personal belongings while they're in your car. Some providers and policies do offer this coverage and will extend it to a rental car as well. 

Injuries

Rental agencies do often offer personal accident insurance, which covers medical costs for you and your passengers in the event of an accident. However, the personal injury protection (PIP) and medical payments portion of an auto insurance policy should cover you, so it is unlikely that you would need the accident insurance from the rental agency. 

Who is covered when driving?

Many insurance carriers draw a distinction between a rental for vacation purposes and a rental used when the insured's vehicle is being repaired. If you're on vacation and purchase a rental car for the duration, only you (the insured) and your immediate family members will be covered by your personal auto policy. However, if your car is being repaired in the shop because of a previous claim, this restriction won't apply. 

As far as the rental car insurance purchased at the rental agency counter, such as a CDW or LDW, you'll want to carefully review the agreement or speak to the rental agent to find out who will be covered. The contract may state that these waivers only apply to the specific individual(s) on the agreement. If you rent a car while on vacation with a group of people, it's essential to understand the outlined conditions. 

Are there vehicle restrictions for PAP rental coverage? 

Coverage is typically limited to private passenger autos, trailers, pickups, and vans. If you're planning on renting a large moving truck or a motorhome or RV, your policy would not cover damage to those vehicles. 

Should you get rental car insurance at the counter? from the rental agency?

Now that we've outlined most of the offerings at the rental counter and taken a look at what your insurance may offer, you may still be asking, "Should you get rental car insurance? Is rental car insurance worth it?"

As you can see, this is not necessarily a straightforward "yes or no," question. It depends on your individual circumstances and situational circumstances, such as:

• How comfortable you are driving the vehicle.
• How familiar you are with the area or how comfortable you are driving in the area.
• The type and cost of the vehicle you're renting.
• Your location  (many insurance policies extend to Canada and Mexico, but not outside those areas).
• Your existing PAP coverage limits.

In general, having some sort of coverage is a good idea, whether you get it from the rental car agency or your personal auto policy provider.

The key is understanding your existing PAP coverages and coverage limits. If you find that you do not have coverage for a specific area, then it is worth speaking to the rental agency about the rental car insurance they provide for that area.

Other reasons you may find that rental car insurance is worth the cost

Apart from the considerations mentioned above, here are additional reasons you may want to consider purchasing a CDW or LDW at the rental counter. 

Your limit of liability may not be sufficient to satisfy the rental company’s demands.

Coverage for damage to the rental car and related costs are provided by the property damage liability section of your personal auto policy. If the property damage limit of liability is not sufficient to cover the value of the vehicle you rent, plus pay for any other costs the rental company demands, you will be personally responsible for the costs that exceed what your insurance company has to pay.

Your policy may exclude rented pickups and vans used for business purposes.

If you rent a pickup or van for business purposes, your personal auto policy may not provide coverage at all. Some insurance companies consider an SUV to be a pickup or van, and may therefore not cover any damages arising out of the use of an SUV rented for business purposes.

Your premium may go up or your policy may not be renewed if you have an at-fault accident.

You are driving an unfamiliar vehicle in unfamiliar territory. If you have an at-fault accident while driving the rented vehicle, your insurance company may hold it against you – with a premium surcharge or perhaps even non-renewal.

Your line of credit may be adversely affected.

If you don’t buy the LDW, the rental company will probably ring up an estimated damage amount on your credit card, pending notification to and settlement by your insurance company.

You may suffer a huge inconvenience.

When you have purchased the LDW, you can bring a damaged vehicle back to the rental company, throw the keys on the counter, and walk away. When you haven’t purchased the LDW, you may have to spend a significant amount of time dealing with the rental company and your insurance company.

At the end of the day, it is up to you to decide whether or not you should purchase rental car insurance at the counter. However, hopefully we have outlined all of the relevant details to help you make the best decision possible!



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