What Rental Car Insurance Do You Really Need?

I rented a car a couple of weeks ago and thought I had scored a great deal at $150 for three days. When I got to the counter and was asked whether I needed any insurance, I froze like a deer in headlights.

I knew my credit card had some insurance coverage, but I couldn't remember exactly what it covered. As a result, I ended up opting for two pieces of insurance that, in the end, were unnecessary and increased my bill to $225.

That got me thinking: What type of coverage do you really need when renting a car?

Demystifying the Types of Rental Car Insurance
First, let's examine the main types of insurance policies that rental car companies offer:

  • Loss/Collision Damage Waiver: You may also see this policy referred to as LDW, CDW, or DW. Whatever the policy is called, it generally covers damages to the rental car as well as towing costs and other related expenses. This is often the most expensive insurance, totaling $20 to $30 a day. 
  • Supplemental Liability Insurance: This policy covers damage to other property, including other cars, that you may damage while driving your rental car, as well as medical expenses for passengers in other vehicles. This coverage costs about $10 to $15 a day.
  • Personal Accident Insurance: This insurance covers medical costs for you and your passengers if you're involved in an accident. It costs around $5 a day.
  • Personal Effects Insurance: This covers the loss of items you keep in your rental car should it get stolen or broken into. Sometimes this coverage is lumped into Personal Accident Insurance. When separate, coverage typically costs less than $5 a day.

How You May Have Coverage Already
You may not need to opt for the insurance you're offered, however. That's because you may already have existing insurance policies that overlap with the coverage rental car companies are offering. Below are some ways your existing insurance policies or credit cards may cover you.

  • Existing Car Insurance: If you own a car and have insured it, your policy likely covers collision, theft, vandalism and liability, so you may not need the loss/collision damage waiver and the liability insurance. That said, if your primary policy is a bare-bones one, has an extremely high deductible or has low coverage limits, it may still make sense to opt into loss damage waiver and liability insurance.

    Erik Chiprich, a New York-based agent at State Farm Insurance, notes that people who don't own cars can still get coverage for those times when they drive. "Non-owned auto insurance policies are for people who don't own cars," he says. "It protects them when they rent or borrow cars."
  • Insurance Coverage on Credit Cards: Credit cards that offer rental car insurance protection typically protect against physical damage to the rental car, theft and loss of use. Most credit cards offer what's known as secondary coverage, which means your primary car insurance will kick in first. The credit card insurance will take effect to cover any costs the primary policy doesn't (such as deductibles and damages in excess of what the primary policy pays).

    If you don't have any primary car insurance, then the credit card insurance will function as your primary policy. Some cards, such as the Chase Sapphire Preferred and Chase MileagePlus United Club Card, offer primary insurance. Generally, for you to be eligible for the coverage through your credit card, you need to: 

    1) Charge the car rental to the credit card offering the insurance; and
    2) Decline the rental car insurance, in this case, the Loss Damage Waiver.

    Don't assume your credit card will provide all the insurance you need, however. 

    "It is rare that credit cards provide liability insurance," Chiprich says. "That's a key point because liability insurance is required by law to drive the car. Many people have the false comfort that the credit card takes care of all insurance requirements only to realize later they were driving the car illegally."
  • Health Insurance: With the implementation of universal health care, most people should have some type of health insurance coverage. If you have relatively good coverage with a low deductible, you probably don't need to opt into the Personal Accident Insurance to get additional health insurance coverage. But if your policy has a high deductible, you should weigh the Personal Accident Insurance coverage vs. your existing health insurance to see whether it's worth it. If you have no health insurance coverage, it's probably worth your while to opt into this policy for $5 a day.
  • Renters or Homeowners Insurance: If you already have a renters or homeowners insurance policy, your personal belongings are already covered, whether they're in your home or in your car. As a result, you likely won't need to opt into the Personal Effects policy.

Putting It All Together
Figuring out the rental car insurance ecosystem is complicated. Plan ahead and do some work in advance, so you don't feel stressed when you get to the rental car counter. Be sure to check with your existing insurance providers to confirm what they will and will not cover when you rent a car.

Next, call any credit card companies that offer protection to confirm their benefits. Make sure to ask credit card companies about rental time limits, coverage overseas and whether they exclude certain types of rental cars, such as antique and luxury vehicles.

Once you've done the heavy lifting, signing the rental car contract should be stress-free. Happy driving!