How Does Rental Car Insurance Work? 3 Things To Know

How Does Rental Car Insurance Work? 3 Things To Know

When you rent a car, you’re assuming responsibility for the vehicle and any damage that may occur to it while using it. Since cars can be quite expensive, and automobile accidents can lead to exorbitant costs, many states require drivers to have a personal auto policy for their personal vehicles (in a way, it’s similar to health insurance because you have a minimum and deductible). But what about rental cars? There are tons of insurance options. 

There’s personal accident insurance, personal effects coverage, rental car coverage, liability coverage, secondary coverage, collision coverage, primary coverage, rental car reimbursement coverage, and a loss-damage waiver you can sign. 

For the same reasons, rental car companies include insurance fees that you can agree to. Let’s break down how rental car insurance works in a few other things you should know about this insurance type before you get to the rental counter.

What Is Rental Car Insurance?

Rental car insurance is exactly what it sounds like; insurance that covers your rental vehicle in the event of an accident or other types of damage. Rental car insurance will foot the bill for specific things depending on your coverage and affect the deductible you have to pay in the event of an accident or any damage to the car (if any deductible is needed at all).

Rental car insurance provides peace of mind to drivers since they know they won’t have to pay hundreds or thousands of dollars if they get into an accident that isn’t their fault, if their rental car gets stolen and they file a police report, or if they encounter other unfortunate incidents.

Now let’s explore three big things to know about rental car insurance: the types of car rental insurance, the average cost of rental insurance, and whether you really need rental insurance for your rental vehicle.

Rental Car Insurance Types

Rental car insurance primarily comes in four major types, although some companies have unique offerings (such as rental car insurance coverage for your personal items). The type of rental car insurance you purchase affects what’s covered and what you may have to pay, if anything, if something happens to the rental vehicle.

LDW or Loss and Damage Waiver

LDW or loss and damage waiver insurance (which is also sometimes called collision damage waiver or CDW insurance) isn’t a full insurance policy. Instead, it’s a waiver of liability if the rental car is stolen or damaged.

An LDW waiver means that the rental company will not charge you for fees if your rental car is damaged or stolen with a few exceptions (such as if they can find proof of you deliberately damaging the vehicle for no good reason).

In many cases, drivers who already have collision and comprehensive car insurance benefit from an automatic loss and damage waiver whenever they rent a car. In that case, you don’t need to pay an extra fee to your rental car agency.

Personal Accident Protection

As its name suggests, personal accident protection covers you from any medical costs and/or passengers’ medical bills if you get into a car accident. Once more, if your own car insurance already includes personal injury protection or covers other types of medical payments, you may not need this from your rental car policy.

Supplemental Liability Protection

A supplemental liability protection policy covers any damage you may do to other vehicles or property in the event of an accident. While it won’t cover the cost of changing a spare tire for you, it will cover most other types of charges you might incur while renting a vehicle for normal use.

Again, if you have liability insurance for your personal vehicle, it could cover any instances of damage when you drive a rental vehicle as well. Be sure to review your policy in detail to see what’s covered and what isn’t.

Personal Effects Insurance

Lastly, most rental car companies will also include personal effects insurance, which covers the approximate cost for belongings that are stolen from your rental vehicle. However, if you already have homeowner’s insurance or a renter’s insurance policy, you might already have coverage for your personal effects even if you are driving a rental car.

As you can see, each of these insurance types covers different costs in the event of an accident, car theft, or another unfortunate event. Plus, your regular car insurance could cover all or some of these policies. 

The Cost of Car Rental Insurance

Rental car insurance’s cost can vary heavily based on several factors, including:

  • The company you are purchasing insurance and renting the car from
  • Your state
  • The type of car you’re renting
  • The miles you plan to drive the car

Car rental insurance can range from as little as $50 to several hundreds of dollars depending on what you want to cover. Generally, the longer you plan to rent your car, the more value you get out of comprehensive car rental insurance.

Do You Always Need Rental Car Insurance?

Not at all. However, rental car insurance can be an excellent idea when:

  • You don’t have a personal vehicle or a personal auto insurance policy. In this case, your personal car insurance won’t cover any of the above damage types and you’ll be on the hook for financial costs if something unfortunate happens
  • You have personal car insurance, but not collision or comprehensive coverage. If you don’t have collision or comprehensive coverage, you’ll have to pay for the costs of repairs to your vehicle and other vehicles if you get into an accident, especially if it’s your fault
  • You’re going on a long vacation or business trip. Some personal car insurance policies have limitations if you’re driving a rental car to a work-related destination or meeting
  • You really don’t want to pay a deductible if something bad happens to your rental car. In some cases, the cost of rental car insurance can be cheaper than the cost for a deductible after an accident

What if Your Personal Car Insurance Covers Rentals?

Then you might be set and don’t need to purchase rental car insurance at all! But you should review the policy of your personal car insurance carefully to make sure you don’t leave anything out. For example, you may already be paying for collision and comprehensive insurance, but your personal policy may not have coverage for personal effects.

So if your rental car was stolen, you wouldn’t have to pay for the theft itself. But you would not be reimbursed for the theft of your personal belongings or valuables. In such a case, you may wish to purchase partial car rental insurance to cover everything in the vehicle as well. 


In the end, rental car insurance is just another way to ensure you don’t have to pay exorbitant fees if you get into an accident or lose your rental car while still under the terms of the rental agreement. It’s necessary for some drivers and not so important for others. It’s up to you to take a look at your personal car insurance policy and figure out what type of rental car insurance is a good idea for your upcoming rental.

If you need to get your vehicle soon, you can start looking for the perfect car to rent right now with Advantage. We offer a wide range of vehicles in our fleet and you can pick up your car at major US airports, resulting in a seamless transition from sky to paved road. Contact us today and let us find you a great rental car.


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