Do you often find yourself worrying about what type of car insurance you should buy when renting a car? Should you pay the extra cost to have rental car insurance through the rental company, utilize the insurance provided by your credit card company, or is it better to simply use your own existing auto policy?
In this article, we’ll address some common questions and clear up any confusion surrounding purchasing rental car insurance. We will explain the differences between buying coverage from a rental car company, credit card company and your own car insurance policy.
Rental car insurance overview
We’ve all been there. You’re standing at the rental car place and you’re asked, “Would you like to add insurance for this rental so you’re not personally liable for any damages”? Now you’re thinking, well, I have car insurance but does it cover everything? And why is their coverage so expensive?
The answer is going to depend on the coverages you have on your current car insurance policy, if you’re out of the country, and what a-la-cart coverage options the rental car company offers.
Your auto insurance policy likely extends to Canada for your vehicle but may not apply to a rental car. Also, there could be a difference in coverage if you rent a car in the United States and drive to Canada versus renting a car in Canada. In this scenario, we would suggest contacting your agent so they can check your specific policy before you go.
If you’re going to be outside the US and Canada you’re almost certainly going to have to purchase coverage from the rental car company because your auto insurance policy will not provide coverage. Just about every single policy will have this exclusion. The laws and systems are just so different from country to country there’s no way to match up all the legal stuff involved.
Other situations when you have to buy from the rental car company
If you carry low liability limits on your policy and you’re renting a vehicle in a state where your limits don’t meet the minimum requirements. For example, in Arizona the minimum Bodily Injury Liability limit per person you could have is $15,000, but in neighboring Utah, it’s $25,000.
It’s insane how low state minimum required limits are. Don’t ever let an insurance agent talk you into having these low limits to save money. If you injure someone in an accident, it’s unlikely $15,000 is going to be sufficient. One night in the emergency room could blow right through that limit. Then you have lost wages, surgery, physical therapy and more.
Ok, I feel better now! Rant over.
You carry liability only on your policy. This only covers the Bodily Injury and Property Damage that you caused others. It does not cover the damage done to the vehicle you were driving. In this case, you could choose to purchase what car rental company’s refer to as a Damage Waiver. Essentially, you’re a-la-carting this since you already have your own Liability coverage. This would then be equivalent to “Full Coverage”.
You have accidents/tickets on your record in the last 5 years. Adding another accident could cause your insurance rates to explode depending on how many previous accidents you’ve had.
If you have one at-fault accident in the last five years, a second one is going to significantly increase your premium. If you’ve had two at-fault accidents in the last five years, you run the risk of being cancelled with a third.
Maybe you want to purchase the rental car company insurance as a safety net to prevent your policy cost from skyrocketing or even being cancelled.
You’re renting a high dollar sports car or luxury car. In this case you probably don’t have to purchase the rental car company insurance but it may be a good idea. Many times these types of vehicles require special parts that must be OEM (Original Equipment Manufacturer) or are hard to get. Your personal policy could have some shortcomings for these types of cars.
Loss of Use
Most personal car insurance policies will provide coverage for loss of use. This is an important coverage. Let’s say you have an at-fault accident in the rental car. It must now go to a shop to be repaired. The rental company is losing money every day they can’t rent that car out because it’s in the shop. Your personal policy may provide coverage depending on the circumstances of the damage. The rental car company insurance may not provide coverage.
If they’re renting that car for $50/day, and it takes 30 days to get fixed, you’re looking at $1,500 out-of-pocket if you don’t have the right coverage.
Here is where it becomes painfully obvious the rental car companies offer insurance because it makes them big profits. Their pricing structure is wildly more expensive than your personal policy.
When you look at it from a per day cost it doesn’t seem all that bad. But if you multiply that out per year, and compare that to your personal insurance policy, you’ll see just how crazy it is.
Depending on your location, and type of car rented, you are paying what is equal to about a $13,000/yr car insurance policy for a single vehicle! Yeah, nuts right? Especially when you consider there are thousands of insurance companies all competing for your business and they’ve determined a healthy price point of about $1,000/yr.
Key takeaways on rental car insurance
Making the right decision when it comes to purchasing rental car insurance can be confusing. It’s best to reach out to your agent before you travel so they can guide you in the right direction. Otherwise, you could be panic-purchasing overpriced car insurance at the last minute. Safe travels!
Free Policy Review
If you’d rather just leave all this research to the pros, we would love to help! Just use this Policy Review link and we’ll look through your current policy and send back our recommended changes.
Of course, we’d love to earn your business, but this is a way for us to give back to the insurance community and reduce the cost of insurance for everyone.