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Rental Car Insurance: Yes, You (Probably) Need It

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Whether you’re planning a trip for business or pleasure, you might need to rent a car. That process is more complicated than most realize.

How so?

For one, renting a car is easy, but there are a ton of insurance coverage options. And, you have to decide fast when you’re at the rental counter.

You want to be responsible (at least most of us do), and you want to make sure you’re covered. But, what type of insurance do you need?

Do you want to avoid paying thousands of dollars if you’re in an accident or another unforeseen event? Then read on about the four types of car insurance and how they cover you during your rental agreement.

Collision Damage Waiver: Basic Insurance Coverage for Your Rental Vehicle

Collision Damage Waiver (CDW) coverage is perhaps the most common and well-known type of protection. I say protection because CDW technically isn’t insurance.

What is CDW?

Like all rental car insurance options, CDW is optional. You decide if you want it or not. If you decide to purchase CDW, you won’t be financially responsible for any damage that could happen to your rental car.

How does it work?

You pay the rental car company a daily fee, and, in return, you’re covered either entirely (or partially) if the car is damaged in an accident or is stolen.

Make sure that you’re not already paying for rental coverage through your personal car insurance policy. If you are, it would be a waste of money to sign up for CDW because you’d have redundant protection.

Also, some gold and platinum credit cards also provide this kind of coverage as a general part of their service. Check with your card issuer and see if it does.

Now, one common misconception is that “layering” insurance policies help you in the end. That’s not how this works. One policy should cover anything that could happen.

Don’t add things you don’t need. As for whether or not you trust the rental car company, your insurance company, or your credit card company’s guarantees in this area is up to you. Always do your research.

Lastly, I want to point out that some car rental companies call CDW Loss Damage Waiver (LDW) or Physical Damage Waiver (PDW).

Increase Your Rental Car Coverage with Supplemental Liability Protection

Supplemental liability insurance, or SLI, is extra protection on top of CDW. What does this mean? Typically, SLI insurance provides you with coverage for losses and damages above and beyond CDW. Generally, SLI will cover losses and damage of up to $1 million, including any injuries or lawsuits incurred during the accident.

Listen, a CDW policy or your personal insurance (assuming you’re already paying for rental coverage) should provide sufficient coverage. Still, the SLI guarantees that you are covered in case you completely destroy not only the rental car company’s property but also someone else’s and even covering their potential injuries.

Whether or not you get this type of insurance is your choice, so do some research before you sign up. Find out how much the basic policy covers and then find out how much your own insurance covers. If you like to be extra cautious, then SLI might be a reasonable deal for you.

We might advise that, if you know you have a poor driving record and are prone to minor accidents, it might make more sense to use the rental car company’s policy. Why? Because it won’t impact your own insurance rates to do so. If you put a damaged rental on your personal insurance, it’s the same as filing a claim on your own car. You can expect that it is going to cost you more in the future.

Personal Accident Insurance for Injury Protection

Personal Accident Insurance (PAI) covers the really bad accidents that result in the death or injury of a driver or passenger.

Like the other policies on this list, you can layer this in with existing coverage through your healthcare insurance provider or even with a life insurance policy.

Coverage rates differ depending on the policy but tend to pay out survivor benefits in the case of death and money for medical treatment in the case of injury.

Unlike SLP, which covers other drivers, PAI only covers you and your passengers. This is a common confusion among car renters. Many think that one or the other covers all people involved, but, unfortunately, that is not the case.

Protect Your Stuff with Personal Effects Coverage

Personal Effects Coverage, or PEC, protects you and your passengers if someone breaks into your rental car and steals your personal items. It’s that simple.

Rates vary, and there are ceilings to how much is covered. You can layer this in with existing policies you may already hold. That’s a common theme that keeps popping up.

There is one caveat. The amounts covered by PEC aren’t usually that big. If you know you will be traveling with very expensive stuff, this policy might help. Still, it is not going to be sufficient to cover a large loss, so leave the Birkin bag at home.

The Average Daily Cost of Rental Car Insurance

We analyzed daily rates at six (6) different rental car companies for a full-size car. Here’s what we found:

Rental Car Insurance Coverage Types Average Daily Cost

LDW is far away the most expensive type of coverage followed by SLI, roadside assistance, and PAI / PEC.

Your Credit Card and Rental Car Insurance

First, let’s talk about paying for your rental car.

In many cases, rental companies prefer renters to have a credit card, but, they will accept debit cards. Keep in mind that the car rental company will put a massive hold on available funds. That means you won’t be able to access that cash during your trip. Before making your reservation, check out the company’s policies and see how they handle payments and insurance.

Also, as I mentioned earlier, some credit cards offer car rental insurance. Check with your credit card issuers to see if your card has that feature. If it does, you won’t need to purchase it again from the rental company.

And if you have any questions, you shouldn’t hesitate to ask the rental company and their representatives. They’ll help you break down the various policies and help you determine whether they are right for you.

You’re not going to have nearly the kind of knowledge that they will have, and they better not steer you wrong. I think that would be illegal. Particularly when it comes to how individual policies work, consulting with the rental company’s representatives can often give you way more clarity than reading a bunch of documents on the companies website.