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UPDATED: Apr 8, 2020
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Rental car insurance can mean one of two things, depending on the context: Either it is insurance that pays for damage to a rental vehicle and is purchased from the rental company itself, or it is insurance that pays for alternate transportation while an insured person’s vehicle is involved in an accident.
Rental Reimbursement Coverage
This is a coverage that you may purchase in addition to standard full coverage on your auto policy. When purchasing rental reimbursement, you decide in advance what the limits shall be on the policy. Most basic policies pay for $30 a day for a maximum of 30 days, but policies are available with higher or lower limits depending on your needs.
Whenever your vehicle is involved in a car accident and you need alternate transportation, the insurance company will pay the agreed-upon amount for the amount of time necessary to repair or replace the vehicle, or until the policy limits are reached. The coverage will usually begin the day that the vehicle is no longer available for use, but some begin the next day; these limitations are generally determined by state law, not the specific policy.
Most car insurance companies will work with rental car companies to provide direct billing; this way, your rental will be paid for directly by the insurance and you will not have to pay anything out of pocket. Other companies may require you to pay for the rental yourself and submit the receipts for reimbursement. Before purchasing a policy, be sure to check with your agent how the payment will be handled.
Rental reimbursement coverage is usually fairly inexpensive, and its convenience makes it worthwhile for many individuals. If you have another vehicle, however, or alternate means of transportation, you may not need to purchase rental coverage.
Collision Damage Waiver
If you do rent a vehicle, either for pleasure or due to needing alternate transportation following an accident, the car rental company will ask if you wish to purchase the additional insurance. This coverage, usually called a collision damage waiver, pays for any damage that occurs to the rental car while you are driving it. Depending on your state, the rental company may offer you other types of additional insurance such as injury coverage, lost luggage coverage or liability coverage.
In most cases, the insurance on your own vehicle will transfer to a rental car, making it unnecessary to purchase the additional insurance. If you carry only liability coverage, however, you will need to pay for the extra coverage on the rental car. Additionally, if you do choose not to pay for the additional insurance, you will be responsible for any deductible you carry in the event of an accident. This means that if you damage the rental car, you will pay your own policy’s collision deductible to the rental company before your insurance will pay for it.
Many rental companies will require you to put the full amount of your deductible down as a deposit when you rent the vehicle. For individuals with a high deductible, this can be extremely pricey. If you intend to only rent the vehicle for a few days, it may be more cost-effective to purchase the additional coverage for a few extra dollars a day rather than running the risk of owing a high deductible. On the other hand, if your chances of a collision in your rental car are very low, you will save money on the rental by avoiding these costs.
Some states handle damage to rental cars differently. A handful of states, including New York, Texas and Minnesota, pay for rental damage under liability coverage rather than first-party coverage such as collision or comprehensive. If you are unsure, the best choice is to ask your insurance agent or customer service for clarification of how your coverage will behave with a rental car.
You may also be able to cover damage to a rental car through other means. For example, many credit cards provide rental car insurance. It may also be covered through travel insurance if you are on vacation. Before purchasing additional coverage on your rental car, it’s wise to see if that coverage is available elsewhere for free. Ideally, you will want to determine this well in advance of needing the rental car, so that there are no surprises waiting on you when you arrive at the rental car location.