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How does Rental Car Insurance Work? You Should Know

Rental vehicles are used for a variety of reasons. Some folks prefer them during road trips, take them out after flying to new cities, or make use of them while their own car awaits or undergoes repairs. Whatever the situation, you need to be protected physically and financially while out there on the road.

Insurance covers the cost of damages that may happen. However, the extent to which regular vehicle insurance providers cover rental car scrapes differs. Additionally, many rental vehicle companies have their own processes for buying insurance and differ in how they approach outside coverage. Know the ins and outs of the 4 types of rental vehicle insurance to know if it’s something you require for your next trip.

Rental Vehicle Insurance

Rental vehicle companies generally provide 4 varieties of insurance at the counter. It tends to be more expensive than other options — sometimes even more than the vehicle itself. Despite the cost, it does stop you from many unanticipated fees you may encounter should anything happen to you and your rental vehicle. See rental car options for:

Liability coverage. Liability covers you if you hurt someone or damage their property while using the rental vehicle.
Collision Damage Waiver (CDW).The CDW (or LDW, for loss damage waiver) does not technically qualify as insurance, but the purchase of this waiver typically covers the cost of repairs from damage. It does tend to be on the pricey side, and often costs more per day than the vehicle itself. This document protects you from paying for:
Damage repair. The CDW covers the cost of damage done to the car, whether minor or major, except in a few cases like those involving tires. It equally won’t cover damage caused by driving on unpaved roads or speeding.
Loss of use. This is calculated as the potential revenue lost while the vehicle is in the repair shop, despite the number of other available vehicle the company has. Oftentimes, your own insurance policy won’t cover this charge.
If the vehicle cannot be driven back to the return station, the CDW will handle the cost of the tow truck.
Diminished value. Rental vehicles usually sell their vehicles within two years. The “diminished value” is the loss of potential resale value due to the damage you caused.
Administrative fees. These fees vary depending on the claims process.
Personal effects coverage. This covers the cost of personal items, like a cell phone or suitcase, stolen from the rented car. If you already have homeowners or renters insurance, loss of personal property, even in a rental vehicle, may already be covered.
Personal accident insurance. If you and your passengers suffer injury from an accident in the rental vehicle, this can help pay medical bills. Your personal vehicle insurance may include medical payments coverage or personal injury protection in case of a rental vehicle accident. Such accidents may also be covered under your health insurance costs.
Other Insurance Options

If you choose not to buy rental car insurance while renting a car, other insurance may be able to cover liability, vehicle damage, lost or stolen items, or personal accident costs depending on the policy. What the CDW covers may differ from what your provider is willing to cover. Additionally, you may have to wait for reimbursement for any charges otherwise covered by the CDW.

You can avoid the high cost of a rental car company’s insurance with:

Personal Insurance: This includes vehicle, health, homeowners, etc. insurance from your preferred insurance company. It may be limited to certain states, but can potentially cover everything a rental company offers to cover for a different price. This includes, but is not limited to:

Comprehensive coverage: to repair rental vehicle damages from danger, theft, or natural disasters.
Collision coverage: to help pay for damages from colliding into another vehicle or object. This may not extend to everything noted in the CDW.
Credit Card Insurance: Certain credit card providers provide auto insurance and rental car insurance if you take out the rental using that credit card. Check with your credit card issuer before assuming it covers all potential damage costs to the rental vehicle. It might not cover diminished value or administrative costs.

Third-Party Travelers Insurance: You may be able to rent a vehicle through a travel agency that offers you the option of purchasing collision coverage at a relatively low price per day. However, this will not include everything, and you may need to pay out of pocket for the damages later.


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