What is Rental Car Insurance and How Does It Work?

When you rent a vehicle, you want to ensure you can travel with peace of mind. That means you have to be properly protected in case things go wrong.

Rental car insurance is vital to helping you enjoy your rental vehicle in comfort. In this comprehensive guide, we'll take a look at how rental car insurance really works and what you need to do to be fully protected.

Rental car insurance explained

Rental car insurance is coverage that protects you if your rental vehicle is damaged or stolen while in your care. If a covered incident occurs, you'll be financially protected from having to foot the entirety of the bill yourself.

Instead, you’ll pay a set amount of the cost (known as an excess), and the rest will be covered by your insurer. If the cost is lower than your excess, you’ll have to cover the entire cost.

Rental car insurance can consist of a range of different components, providing unique levels of coverage. For specific information for certain destinations, check out our rental guides for different locations around the world.

What is a Collision Damage Waiver (CDW)?

Perhaps the most important part of car rental insurance to understand is a Collision Damage Waiver (CDW). A Collision Damage Waiver is a document that reduces your liability for damages to a rental vehicle. It may come into effect if your vehicle is damaged in an incident like a car accident.

In some cases, a policy might be called a "Collision Damage Waiver" while also offering cover in the case of theft. Policies that cover both damage and theft are also known as a Loss Damage Waiver (LDW).

In a strict sense, a CDW is not actually "insurance". It functions by transferring the risk of financial loss of damages to the rental company.

Outside of the US and Canada, CDWs are usually included in the cost of your rental vehicle. These CDWs often come with high excess.

This means you can face significant out-of-pocket costs in the event of an incident. Cover may also be limited in certain areas.

A typical CDW from a car rental company or credit card company might cover the following:

Single vehicle accidents.
Theft or loss protection.
Optional extras like scratches and bumps to the main body of a vehicle.

To bolster your coverage and enjoy greater peace of mind in your rental vehicle, you can purchase a RentalCover policy before you pick up your vehicle. Our policy means you have no excess to pay in the event of an incident.

We'll also provide additional cover in areas where your car rental company's CDW is lacking. For example, we include the following cover on all our policies:

Multi-vehicle accidents.
Full fire, theft and vandalism cover.
Towing.
Lockouts.
Car key cover.
Windscreens.
Headlights.
Tyres.
Underbody damage.

Other types of rental car insurance

Here are some further aspects of rental car insurance you should seek to understand before hiring a vehicle:

Super Collision Damage Waiver (SCDW)

A Super Collision Damage Waiver, also known as a Super Loss Damage Waiver, is an additional product sold by car rental companies. It's often available to purchase at the rental desk.

It's a more "premium" version of a CDW. It usually reduces your excess to zero. However, you may still face additional fees for towing and loss of use. SCDWs also usually cover you for most exclusions of a CDW policy.

Reducing your excess sounds great. However, SCDW policies from car rental companies aren't necessarily the best value for money.

RentalCover offers a more affordable option, with $0 to pay in the event of an accident.

Personal Accident Insurance (PAI)

Personal Accident Insurance (PAI) provides cover for the drivers of a rental car and their passengers for accidental medical costs, emergency care and accidental death during your rental trip.

Rental companies often offer this policy at the rental counter. However, you might find other insurance you have renders this policy redundant.

For example, your travel insurance policy might already fulfil everything that a PAI policy from a rental company offers. Be sure to carefully weigh up the PAI policy offered to you against your existing cover, and decide whether it's worth it for you.

Please note that PAI is not included in RentalCover policies.

Third Party Insurance

In most of Europe, Asia and Oceania, Third Party Insurance must be provided by car rental companies. This is a legal requirement.

This covers damages to other vehicles and injuries to other drivers. As a result, there's usually no need for providers like car rental companies to offer Third Party Insurance policies. RentalCover does not offer Third Party Insurance coverage.

For more information, check your rental agreement to understand what Third Party Insurance cover you have.

Who offers car rental insurance?

Car rental insurance can look quite different depending on who you buy it from. Here are some major car hire insurance providers, and what you can expect from each of them.

RentalCover

Dedicated rental car insurance providers like RentalCover can offer insurance that is both more affordable and more comprehensive than the rental companies.

At RentalCover, we offer policies that cover your excess in the event of a claim with your car rental company. In the event of an incident, you won't have to pay anything out-of-pocket.

We also provide coverage for certain exclusions in your rental company's policies. Our policies are 50% cheaper than what you would pay at the rental desk for equivalent cover^†.

We have no hidden fees and no claim fees. If you need to make a claim with us, we have an easy online process which you can complete in any language. 98% of claims are paid out within 3 days, in any currency.

Car rental companies

Many customers may not consider any options for rental car insurance outside of what their car rental company offers. Outside of Canada and the United States, a CDW will generally be included in the price of your rental vehicle.

When you arrive at the rental desk, you might face a “hard sell” for a policy like a SCDW. These policies cover many exclusions of base CDWs, and usually reduce excess costs to zero. However, additional fees for towing and loss of use may still apply.

While this might seem like a convenient option, it often isn't the most cost-effective one for you. Many alternative providers outperform the coverage car rental companies offer. A RentalCover policy is often more affordable than a SCDW from a rental company, and there's $0 to pay in the event of an accident.

Car rental companies often rely on the fact that customers haven't fully weighed all of their options and can be pressured into purchasing expensive coverage. Make sure to carefully consider whether another provider like RentalCover is better for you.

Credit cards

You might also be able to use rental car coverage from your credit card. Like cover from car rental companies, this cover often has significant exclusions or optional add-ons. This can include:

Multi-vehicle accidents.
Fire and theft.
Vandalism.
Towing.
Lockouts.
Keys.
Windscreens.
Headlights.

Credit card insurance is also typically secondary insurance. This means that before you can be reimbursed, you must file a claim with other relevant insurance you hold. As a result of this process, you could find yourself out of pocket for a long period.

In contrast, RentalCover works directly with your car rental company to settle claims. We pay out 98% of claims within 3 days, in any currency.

Travel insurers

Some travel insurance policies can also include a level of rental car insurance. For example, your policy might include cover for your car insurance excess.

Rental car insurance from travel insurers often has many exclusions, and may be capped at a lower price than rental companies may charge. Much like credit cards, making a claim through your travel insurer can result in lengthy waiting periods in which you're out-of-pocket.

What's the best option for buying rental car insurance?

For many customers, the best choice for buying rental car insurance is a specialist rental insurance provider like RentalCover. That's because:

Our policies are 50% cheaper than the rental companies^†.
We cover exclusions ranging from multi-vehicle accidents to underbody damage.
You have $0 to pay in the event of an accident.

Don't get forced into hard sells at the rental desk, or settle for subpar cover through a credit card or travel insurer. Get the specialised cover you need to enjoy peace of mind in your rental vehicle.

Cover your rental vehicle with RentalCover

RentalCover offers high-quality policies that are more affordable and comprehensive than the rental companies. With our cover, you're protected for events that rental companies and other insurance providers often exclude.

Our cover is 50% cheaper than car rental companies, and there's nothing for you to pay in the event of a claim.† Get a quote today and find out how you can enjoy your next rental vehicle with more confidence.

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Hear from our rental car insurance expert

"Car rental insurance can feel complex, but once you understand the key concepts, it becomes much easier to find the best coverage for you. While a basic CDW is likely to be included in the price of your rental vehicle, more cover is usually required for peace of mind.

That's when you can rely on RentalCover. Our cover is 50% cheaper than equivalent cover from rental companies^†, and there's nothing for you to pay in the event of an incident."

Frequently asked questions

What happens if I damage a rental car?

If you damage a rental car, you should first follow the conditions of your car rental agreement. This involves informing the business you have hired the car from of the damage that occurred.

When you return your hire car, the damage will be assessed, and there will be a process by which your out-of-pocket costs are determined. If you have purchased protection from RentalCover, you can file a seamless online claim. Your claim will be swiftly processed, and you will be paid out in the currency of your choosing.

What is Personal Effects Insurance (PEI)?

Personal Effects Insurance (PEI), also known as Personal Effects Coverage, offers cover for personal belongings like clothes, electronics and jewellery if they are damaged or stolen in your rental vehicle. You may be able to purchase this insurance through your car rental company, offering some additional peace of mind on your travels.

Personal Effects Insurance is not included in RentalCover policies.

Do I need full protection on car hire?

"Full protection" policies may be sold to you by your rental car company at the pick-up desk. These policies are also known as Super Collision Damage Waivers.

Generally, these policies don't offer great value to customers. Instead, you should consider alternatives like a RentalCover policy. Just like "full protection" policies, we cover exclusions of basic CDWs, often at a more affordable price tag.

With our policy, there's nothing to pay in the event of an incident. "Full protection" policies may leave you on the hook for costs like administrative fees and towing.

What is car hire excess insurance?

Car hire excess insurance offers financial protection if things go wrong when driving a rental vehicle. Outside of the United States and Canada, the price of your car rental usually includes the cost of a Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW).

Your CDW/LDW reduces your liability if your rental car is damaged or stolen. It's similar to basic insurance, covering you for some damage to your rental vehicle. However, it typically comes with a high excess, meaning you can face significant out-of-pocket costs.

Car hire excess insurance provides protection for this high excess. You can buy this cover from your car rental company at the rental desk. However, you can also choose an alternative provider who may offer a better deal for you.

What does car rental insurance typically cover?

The cover you get from car rental insurance depends significantly on your exact policy and what type of provider you purchased it from. Common inclusions across most car rental insurance policies include:

Single vehicle accidents.
Damage to the main body of a rental vehicle.
Theft protection.

Specialist providers like RentalCover often go well beyond the cover you get from a car rental company or a credit card. We include cover for windscreens, underbody damage, tyres and much more.

For more general insights into car rental insurance, check out our blog.

Should I buy car rental insurance from my car rental company?

A base level of protection known as a Collision Damage Waiver is likely to be included in the base price of your car rental.

Your rental car company might also offer you additional policies to cover your exclusions and reduce your excess to zero. However, RentalCover offers this level of cover at a more affordable price.

With RentalCover, there's also nothing for you to pay in the event of an incident, while your car rental coverage might leave you on the hook for administrative fees and towing.

What is secondary car rental insurance?

Secondary car rental insurance refers to coverage that pays out after you have filed a claim with a different insurer. For example, credit card insurance is a form of secondary insurance, requiring you to file a claim with a different insurer before you can be reimbursed.

With which brands can I use third-party rental car insurance?

RentalCover’s policies are compatible with car rental companies worldwide. This includes Enterprise, Hertz, Avis, Budget, Thrifty, Europcar and thousands more.