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Renting a car is a great way to get around if you’re traveling or don’t own a vehicle. You should always have adequate insurance coverage through an insurer or the rental company. It’s a good idea to compare your insurance options before renting a car because it helps you avoid paying out of pocket for losses that occur.
Some credit cards even offer rental car coverage when you use the card to book and pay for your rental. This is convenient and cost-effective, but it can also be confusing to understand when coverage applies.
Here’s what you need to know about rental car coverage.
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You can typically rent a car without purchasing additional coverage if you have liability-only insurance, but you may be on the hook financially if the vehicle incurs damage while in your possession.
You also have the option of purchasing coverage from the rental car company when you go to pick up the vehicle. Though the coverage provides financial protection in the event of vehicle damage or loss, it isn’t necessarily insurance in the traditional sense. Instead, this optional protection is a collision or loss damage waiver that waives your financial obligations.
Do you need rental car insurance?
Having some form of rental car coverage is important because it helps protect you from financial liability regardless of what happens to your rental vehicle.
If you have adequate auto insurance that extends to rental cars, you probably don’t need to purchase additional coverage. But you may still want to consider buying a rental policy if you don’t already have collision or comprehensive coverage, or if you want to avoid potentially making a claim against your own policy.
The daily charge for rental car insurance might also make sense if you’re traveling in another country or don’t already have an auto insurance policy for a vehicle you own.
Let’s say you have an existing auto insurance policy that covers your rental car, and you accidentally backed into a pole at a shopping center. While you can file a claim against your own policy, doing so would require you to pay your deductible and might also result in higher premiums at renewal time. Having a separate rental policy can help you avoid filing a claim.
Rental car insurance coverage types
The next time you rent a car, you have a few different types of coverage to consider. Each one can provide you with some level of financial protection, but they each operate a bit differently.
Collision damage waiver (CDW)
A collision damage waiver (CDW) is an optional coverage that you can purchase at the rental car counter when you pick up your vehicle. Sometimes, your credit card issuer may offer this coverage as well. Having a CDW limits your liability if you have an accident or the vehicle incurs damage. A CDW can cover any damage to the vehicle and help you avoid paying out-of-pocket repair costs or filing a claim on your own car insurance policy.
Though many companies use CDWs and loss damage waivers (LDWs) interchangeably, the two coverages have an important difference to note. CDW coverage only kicks in following a collision. If someone steals the vehicle, you may still be on the hook for any losses. An LDW can waive your financial obligation to any eligible damages that occur while you’re renting.
Supplemental liability protection (SLP)
Rental car companies usually also offer supplemental liability protection (SLP). This coverage provides excess liability protection for other drivers if you cause an accident while driving your rental vehicle.
You can use your SLP insurance in conjunction with — and even primary to — your own liability coverage. It doesn’t protect you against financial responsibility for the damage or loss of the rental car. But it can help cover medical bills and property damage expenses for other parties involved in your at-fault accident.
Personal accident insurance (PAI)
Also sometimes known as personal accident and effects (PAE) coverage, personal accident insurance (PAI) is an optional coverage that provides drivers and some passengers with coverage for accidental injury, death and dismemberment, and hospital expenses. In some cases, it even covers stolen or damaged personal belongings in the vehicle.
In most cases, rental car companies sell this as supplemental coverage for a daily fee. You can usually add it when you make your rental reservation or at the counter when you pick up the vehicle.
Personal effects coverage (PEC)
Personal effects coverage (PEC) is another supplemental coverage that you can add to a rental car reservation. It offers damage and theft coverage for any personal items that belong to the driver or family members traveling with them.
PEC typically has relatively low coverage limits on a per-item or per-person basis. Common exclusions for the coverage include currency, medical devices, animals, and certain electronics. If the loss appears suspicious, the rental company may deny your claim. For example, if you claim an item was stolen from a locked vehicle but there’s no sign of damage or a break-in, your claim might also be denied.
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Rental car insurance alternatives
You have a couple alternatives to consider if you don’t want to buy supplemental rental car insurance from the rental company. For example, you may have an existing auto policy that extends coverage to rental cars. Additionally, many credit card issuers offer rental car insurance for customers who use the credit card when booking and paying for their rental.
Rental car insurance from most credit card issuers is typically secondary to any personal auto insurance policy you already have. With secondary coverage through a credit card, you still may need to pay your deductible and file a claim against your own coverage if you have an at-fault incident.
Several credit card issuers offer primary rental car coverage, which will kick in first before any other coverage. As long as the claim is eligible and you don’t exceed the coverage limits provided, you won’t need to pay your deductible or even file a claim with your own insurance. You’ll need to book and pay for your rental car in full with that credit card and decline the rental car company’s optional coverage.
Rental car insurance FAQs
It’s important to have liability and vehicle protection while you drive a rental car. The following information should help you decide where to buy rental car insurance.
How do you know if your credit card covers rental car insurance?
If your credit card offers rental car insurance, you can find the details of this coverage in the credit card issuer’s benefits documents related to your specific card. There, you’ll find information about your coverage limits, whether it’s primary or secondary, how to qualify, and what to do to avoid denied claims.
Is rental car insurance a rip-off?
In some cases, rental car insurance can feel redundant, especially if you already have auto insurance coverage that extends to rental cars. However, it may be worth the cost if you want to try to avoid having to make a claim against your own policy or paying your deductible following an accident or loss.
Does GEICO car insurance cover rental cars?
Often, yes. Your existing GEICO car insurance coverage will extend to rental vehicles you’re driving in many cases. It’s always wise to call and check with your insurance company to confirm this coverage or look over your insurance policy documents thoroughly before renting a car.
Does your own liability insurance cover rental car accidents?
Generally, yes. Most auto insurance policies will protect you when you’re driving a rental car, so your liability insurance will usually cover you if you have a car accident while driving a rental. However, your liability insurance will only protect you up to your policy’s coverage limits.
Stephanie is a DC-based freelance writer. She primarily covers personal finance topics such as insurance, loans, real estate investing, and retirement. Her work can be found on CBS, FOX Business, MSN, Yahoo! Finance, Business Insider, and more. When she isn't helping people plan for their financial futures, she is traveling, hiking with her kids, or writing for her own website, TomorrowsDollar.com. She can be reached on Twitter @stephcolestock