Rental Car Insurance: Is It Worth It?

If you’ve ever rented a car, you know that you must make the decision about whether or not to purchase the insurance offered by the rental car company before you can get your keys and drive off. Many people wonder if this extra insurance is necessary, or even a good idea. The answer to this question is not as cut-and-dry as you might think.

Rental car companies will offer you three different types of coverage. Whether or not you should purchase any or all of them depends both on what your current auto insurance policy covers and how much you can afford to lose in the event of an accident. In this article, I will explain each type of coverage so that you can best choose whether any are right for you.

Coverage Type 1: Liability Coverage

Liability insurance coverage is designed to provide coverage for personal injuries and property damages that you cause to a third party. This means that if you are responsible for a motor vehicle accident, the damages that you may be sued for can be covered up to your liability coverage limits, which will vary from one policy to the next.

If you own a car, then by law, you should have car insurance. All car insurance policies offer liability protection and, in most cases, this coverage extends to your use of a rental car. Be aware that some policies specifically exclude liability coverage for rental vehicles in order to make the policies cheaper, so when in doubt, ask your insurance agent. 

Ideally, your car insurance will already provide you with enough liability insurance to adequately protect your finances in the event of an accident. In this case, you do not need to purchase this insurance through the rental car company.

If you do not have a car insurance policy, or if your insurance policy specifically excludes rental car coverage, you will be required to purchase liability insurance when you rent the car. This is nothing to be upset about, as it is designed to protect you from catastrophic financial losses if something were to go horribly wrong.

Coverage Type 2:  Injury / Medical Payments Coverage

This insurance coverage is designed to cover necessary medical costs in the event that you or your passengers are injured in a collision while driving your rental car. This can include ambulance services as well as medical treatments.  So, do you need it? Possibly.

Many people do not realize that their health insurance policy may not cover medical treatment for injuries caused by an auto accident. These are typically covered by car insurance, a lawsuit, or out-of-pocket. If you do not have car insurance, therefore, this coverage is a good thing to have.

If you do have car insurance, you may or may not have this coverage as part of your policy. Most states require their drivers to carry liability insurance coverage only, but some do require medical payments or personal injury protection (PIP) insurance as part of their minimum coverage requirements. 

If you do not have it, it is a personal decision whether or not you want to purchase it. If you want it for the rental car, you likely want it for your personal vehicle as well, so you may want to speak with your Trusted Choice® insurance agent about having that coverage added.

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Coverage Type 3: Loss Damage Waiver

Let me start off by saying that the Loss Damage Waiver is not insurance. It is a contractual waiver that will allow you to walk away from costs accrued if you damage the car, so long as you have not violated the terms of your contract (e.g. by driving under the influence, recklessly, or off-road). Whether or not you should purchase this coverage is a bit more complicated. Let me explain.

If you damage the rental car, or if it gets stolen or vandalized, you are responsible for making restitution to the car rental company. You may already have a measure of coverage if your car insurance policy includes collision and other-than-collision (comprehensive) insurance. 

If you are still making payments on your vehicle, you likely already have this coverage, as it is required by most lenders. If your car loan is paid in full, it is possible that you have foregone this coverage in order to get reduced coverage rates, and in this case you would have no protection without the Loss Damage Waiver.

However, even with car insurance, you are still going to owe a good sum of money if you damage the car. This is because you will still be expected to pay:

• Your insurance deductible to cover the repairs
• A loss of use fee since the car rental company cannot make money off their car while it is out-of-service
• A diminished value fee to make up for the lost resale value of the car
• Administrative fees, because they have to pay someone to assess and collect all these fees

Bottom line: You’ll end up spending a lot of money if you damage the car—even if you have great insurance coverage. On the other hand, when you purchase the Loss Damage Waiver, you protect yourself from all of this, enabling you to walk away with no costs assessed to you at all.

That said, is it worth it? This coverage isn’t cheap. It can cost as much as $35 per day, and even more if you are renting the car in crime-ridden areas. The fact is, it is entirely up to you. I can tell you what I do.

If I am traveling on business and the costs are expensed through my work, I absolutely purchase the Loss Damage Waiver. When renting a car for pleasure, I make a quick assessment of the situation. If I will be driving on roads I’m familiar with, parking in a safe location, and not using the car very much, I skip it. I feel confident that I will be able to return the car in good shape and I do not feel that the financial hit I would take if I were in a collision would cause me significant hardship.

However, if I am going to be doing a lot of driving on unfamiliar roads, will be parking in an iffy-area, or will be putting a lot of miles on the car, I am likely to purchase the coverage just in case. In that case, I feel that the cost is justifiable.

Learn More About Your Car Insurance Coverage

When making the decision about whether or not to purchase offered auto insurance at the car rental counter, it helps to be aware of what your current auto policy covers, and also how much coverage you have. Before you rent a car, it may be a good idea to sit down with your insurance agent to go over your policy and get advice about coverage.