Do I Need Rental Car Insurance?

A confounding situation that many of us end up in more frequently than we'd like is when we're renting a car and are asked whether we want to purchase insurance. The salesperson is typically persuasive, and many of us are not sure what to do.

Whether you need rental car insurance is not a simple question, either, as there's insurance coverage for damage to the auto and coverage for you and your belongings. Your personal insurance policies and/or your credit cards might already be protecting you, too. What should you do?

Car rental insurance basics: policies and coverage

When you rent a car and are offered the chance to add on some insurance, there are typically up to four kinds of coverage actually on offer:

• A loss-damage waiver or collision-damage waiver: If you're in an accident in a rental car (or it's stolen), you are typically responsible for the financial loss, which could be costly. With this coverage, the rental company waives that responsibility, relieving you of it. There is usually no deductible involved if you're renting a car in the United States, but there might be a several-thousand-dollar deductible abroad. This coverage will often cost around $10 to $30 per day.
• Liability insurance or supplemental liability insurance: This coverage offers protection from any lawsuits that might arise from any incidents occurring during your rental period. It can cost between about $7 and $15 per day.
• Personal accident insurance: This coverage is designed to pay for medical costs you (and any passengers) might incur in an accident while renting the car. It's often relatively inexpensive, at around $1 to $7 per day.
• Personal effects coverage: This coverage, typically running between $1 and $5 per day, insures your belongings that are with you in your rented car.

When car rental insurance isn't needed

The coverages above might all sound reasonable and even necessary, even though they may cost you a total of $40 or more per day, which can add up to a significant sum over the course of a few days. Fortunately, there's a good chance that you don't need any or all of them -- because you're already covered!

You can prepare for the question at the car rental counter by doing a little research before you leave home. Look into your various insurance policies and also your credit card agreements, to see what rental car protections they offer.

If you've bought travel insurance for your trip, find out what kind of coverage it offers related to rental cars. It might, for example, feature collision protection. If it does, find out whether it's primary or secondary. Secondary means that it will only cover what your own car insurance policy won't, meaning that your auto insurance company will have to be involved.

If you own a car and carry auto insurance on it, you may have all the collision protection you need in your current policy, as many policies extend such coverage to cars you rent. Note, though, that many people do not carry collision coverage, especially if their car is old, making the rental company's coverage worth considering or buying. There's another reason you might want it, too: Many rental companies will hold you responsible for not only the damage to the rental car, but also for their loss of income while it's being repaired. Find out if your current policy covers such "loss of use" amounts. If it doesn't, that's a reason to consider the rental company's coverage.

Liability insurance is a different matter and is actually required of drivers in most states. The amount of the coverage can vary, though, so know how much you're covered for and decide whether it's sufficient -- not only for the rental of a car but also for when you're driving your own car.

Next up is your personal health insurance. It's probably sufficient -- plus, it's sometimes bolstered by medical coverage in your auto insurance policy. When it comes to protecting your personal possessions that are with you in your rental car, your homeowner's policy or your renter's insurance policy is likely to cover that -- just double check.

Finally, look into your credit card agreements. Many cards these days offer certain rental-car-related coverages. The amount of coverage might not be generous, though, and it's often secondary, meaning that you'll need to involve your insurance compan(ies).

When car rental insurance makes sense

If you're getting the sense that deciding whether to buy rental car insurance is not a no-brainer decision, you're right.

There are some situations in which the decision is easier, though. For example, if you're renting the car for a business trip or are traveling abroad, your personal auto insurance policy may not cover you in those instances, so it can make sense to buy coverage at the counter. Likewise, if you don't own a car and have no auto insurance of your own -- or if your deductible is steep.

Finally, a reasonable reason to buy coverage at the counter is if you just want to keep your auto insurance policy out of it, so that a claim doesn't go on your record and your premium costs don't increase. A rational person might crunch some numbers here, deciding that given the relatively low chance of any accident occurring, it's worth rolling the dice and declining the extra coverage. Even if an accident happens and it costs you a total of $1,000, that might still be worth it, when weighed against the many times you rent a car and decline $40-a-day charges.

Whether you should buy or decline the insurance offered at the rental car counter will depend on several factors, such as what coverage your other insurance policies and credit cards might offer. If you'd rather keep things simple and safe, buy the coverage. If you're confident that you're sufficiently covered elsewhere and are willing to put those policies in action should an unfortunate incident occur, decline it.

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