Rental Car Insurance: Do You Need It?

Renting a car is often liberating when you’re on vacation, giving you the freedom to hop from place to place without any need for public transportation or overpriced ride-hailing options (e.g., taxis or Ubers).

It’s important, however, to secure appropriate insurance coverage before getting behind the wheel. Otherwise, you could be held financially responsible for any damages incurred should you find yourself in an accident or as the victim of a car theft.

While many rental car companies encourage drivers to purchase their insurance packages when picking up a vehicle, it's important to note this isn’t your only option. As convincing as these sales pitches often are, know you can turn to many other alternatives to protect yourself in this case—and some are free!

The information shared in this article will help you determine whether to pay for car rental insurance the next time you vacation without your own vehicle.

Do I need rental car insurance?

Strictly speaking, you must be covered by an insurance policy when driving a rental car. However, this doesn’t necessarily mean you must purchase the same directly from the rental company. Not only are the insurance packages they provide often charged at a premium, but they may not give you the support you need following an accident—and you may in fact already be covered by your existing car insurance policy!

Check with your car insurance provider first

While coverage varies depending on the specific provider and policy, most car insurance policies also extend to rental car coverage for most types of non-exotic vehicles. Keep in mind, however, that this typically dictates you use the vehicle for personal use only (and often within U.S. or Canadian borders). As such, coverage may not apply to business travel, and your current insurance policy will likely only extend to vehicles with the same coverage limits (and deductibles) as your one at home. Here are some specifics to look out for…

Comprehensive and Collision Insurance

If you have comprehensive and collision insurance, your policy will cover the cost of damages incurred while the vehicle is in your possession or any losses if the car is stolen (e.g., internal and external damage, replacement parts, or a new vehicle if necessary); you therefore don't need to purchase a loss damage waiver (LDW) or collision damage waiver (CDW) from the rental company. Such optional products, for an extra fee, waive the renter's financial responsibility for any losses or damages.

Liability Insurance

Liability insurance policies cover the cost of damage to other vehicles as well as any injuries/medical treatment and support for anyone injured in an accident you’re involved in. As most states mandate your policy include liability coverage, you can decline any supplemental liability protection offered by the car rental company unless you're traveling in an area that falls outside the jurisdiction of your policy.

Personal Injury Protection (PIP)

Also known as “medical payments coverage,” this covers costs for you and any passengers involved in an accident. If your car insurance policy doesn’t include this, check with your health insurance company before agreeing to personal accident insurance at the rental counter.

Lost and Stolen Property

A homeowners’ or renters’ insurance policy will generally cover any possessions stolen from your car, even if you’re vacationing outside the U.S. or Canada. If you have this coverage, you can decline what’s often referred to as “personal effects coverage” from the rental car company.

Are any other car insurance alternatives available?

Reaching out to your credit card provider

Many leading credit card issuers offer customers complimentary rental car insurance, but it’s crucial to contact them ahead of time to ensure you receive the appropriate amount of support.

These companies tend to offer two forms of coverage: primary and secondary options. While both provide financial support after an accident, primary coverage is considered the best option as its secondary counterpart is used in conjunction with your primary car insurance policy (i.e., once this is maxed out). As a result, an accident can harm your deductible—meaning your primary car insurance will cost more in the aftermath.

In speaking with your credit card provider, first ask which type of coverage they offer: including what is (and is not) included to understand the scope of coverage and support you would receive. For example, while some credit card providers offer coverage for any personal items lost in an accident, others may only cover damage to vehicles or injuries to others. You should also ask if you need to do anything specific to activate your insurance policy (e.g., you’re typically required to turn down the rental company's insurance policy and pay for the vehicle using your credit card).

Buying a standalone policy

Alternatively, you can purchase a standalone insurance policy through a third party that provides coverage. This option is often more cost-effective than buying coverage from the rental company provider, though they’ll still try to upsell their services when you collect your keys at the counter.

A significant benefit of purchasing a standalone policy is that you can do plenty of research to ensure you find the best possible option (e.g., paying a little more to receive more comprehensive coverage or instead sticking to a basic package). Either which way, you can compare costs online to find a provider that best meets your needs and budget. Allianz Global Assistance, Bonzah, Rental Cover, and Sure are examples of these third-party providers (note: Vision Retirement has no affiliation with any of these companies).

When purchasing a standalone policy, be sure to work with a trusted provider to avoid potential scams and protect your best interest moving forward—noting you can assess provider trustworthiness by reading reviews posted by previous customers online.

Contact providers directly with any specific questions about coverage and costs, as they can walk you through the process of securing a standalone rental car insurance policy to protect your best interests in the future.

Rental car insurance: the final verdict

Given that over 5 million car accidents occur every year in the U.S. (per National Highway Traffic Safety Administration stats), it’s better to prepare for the worst than wish you’d taken precautions earlier. However, most people should only consider purchasing insurance coverage at the car rental counter after they’ve exhausted all other options—especially since they’ll likely overpay if they decide to go this route.

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.