Solved - Car Rental Insurance Explained

Consumers often have some confusion about car rental insurance. Usually, when people ask us about rental car insurance, they have one of four questions:

Will my car insurance policy pay for a rental car?
Does my car insurance cover damage to my rental car?
If I have an accident in the rental car, does my car insurance pay for damage to other people and vehicles?
Should I purchase “car rental insurance” from the rental company when I rent a car?

We’ll answer all these frequent questions today. But first, know that rental car insurance is not the same as rental car reimbursement coverage. Let’s explain that endorsement first.

Rental Car Reimbursement: Will My Car Insurance Policy Pay for a Rental Car?

Possibly, if you were in an accident. Many auto insurance policies will cover a portion of the cost of a rental car while your vehicle is in the shop after a covered accident.

Now, this coverage isn’t required by law in any state. And it will come at an extra cost, usually $5 to $20 per month depending on your risk pool and the amount of coverage you need. But it provides meaningful security for single parents, owners of one vehicle, and anyone else that must have a car on hand every day.

Rental Car Coverage Riders

Every car insurance policy is a unique agreement between the insurer and insured. If you purchased a new car insurance package, it may include rental car coverage.

There will be policy limits involved.
Perhaps your policy will pay $20 or $50 per day, for ten days for the rental car.
But if you’re replacing a large work truck, you might need closer to $80 or $100 per day. Rental cars can be expensive!

Just remember, this auto insurance rider will only apply when your insured vehicle is in a covered accident. It does not purchase a rental car for you to enjoy on vacation. It won’t pay for a rental car for your best friend if you crashed their car.

Let’s switch gears. Let’s imagine you’re on vacation and you’ve rented a car. You’re tired, feeling a bit jet-lagged, and unfamiliar with this vehicle. You accidentally back into a parked rental car leaving the airport parking lot. Is this at fault accident covered by your auto insurance?

Does My Car Insurance Cover Damage to a Rental Car?

Yes. To paraphrase Mike McCracken of the International Risk Management Institute (IRMI), the liability portion of your personal auto policy will cover damage you cause to persons or property while driving any vehicle, whether you own it or not.

So, if you have a little fender bender at the airport, property damage to both cars is covered by the liability part of your policy – up to the policy limits, of course.
If you are in an at-fault accident that injures other people, you are also covered up to the policy limits.
And with the rising costs of medical care, we suggest you keep a high level of liability for personal injury – but that’s a blog for another day.

Now, even though the repairs to your rental car and the parked rental car are covered, the rental company will still lose money. Their vehicles must be taken out of service as they are being repaired. They might be losing $50 or $80 per day a day of income on each vehicle, and that income replacement is not covered by your personal auto policy.

You will be financially responsible for these damages. One exception would be if you’re a business owner doing business in that rental car – that damage might be covered by the auto portion of your business owner’s policy.

Also, if you don’t have full coverage on your personal vehicle, or a homeowner’s or renter’s policy, you won’t be covered for issues like property theft – when someone steals your belongings out of a rental car.

And that’s why many consumers should buy the “extra insurance” at the rental car desk.

Should I Purchase the Extra Car Rental Insurance When Renting a Vehicle?

The short answer is “yes.” But let’s explore rental car coverage from the perspective of different customers.

What if I have Full Coverage Auto Insurance?

Imagine yourself at the rental car counter. You’re about to embark on a personal vacation and you have full coverage car insurance on your personal vehicle, a homeowner’s policy at your house and plenty of personal liability insurance beyond that in an umbrella policy. You feel financially protected.

The staffer preparing your contract asks if you would like the “additional insurance” or “liability waiver.” Should you buy it? Probably.

First, know the rental car “insurance” offered to you at the counter isn’t insurance at all. It’s two waivers of liability that you’ll pay to sign. Briefly, they say the renter of the vehicle is not financially responsible for any damage to the vehicle, or loss of use, even up to the entire value of a stolen rental car.

The average cost of these waivers (together) is $9 / day in the US. We’d suggest you purchase them! That way, if your rental car is stolen, damaged, or even a windshield broken, you will not be responsible. You won’t need to involve your insurance in a claim. (Remember, the quantity, cost and frequency of claims can affect the premium you pay for all your insurance products.)

Should I buy Car Rental Insurance if I’m Licensed but Not Insured?

Now imagine you live and work in New York City. You have a driver’s license, but no vehicle. You usually take the train to work. You’re heading into the Poconos for a little respite in a rental car. Should you buy the car rental insurance offered at the counter?

Absolutely, yes! You should buy all the insurance offered at the rental car counter. Otherwise, you’ll be on the hook to pay for any damages to the vehicle out-of-pocket. However, a homeowner’s or renter’s policy will pay for (most) belongings stolen out of the vehicle while you’re away.

We’d like to leave you with one final note about car rental “insurance” waivers: they only cover the named driver. In other words, don’t let anyone else drive the rental, or the waivers don’t apply, and you’ll be responsible for any damage to the rental car.