This article was written in partnership with LowestRates.
Car rental insurance is ridiculously expensive…
… taking both the liability insurance and car damage or replacement coverage can easily double the daily cost of a rental.
The question is: do you need those expensive car rental insurance extras?
The answer is often no - or at least you can find much cheaper alternatives to get the same coverage.
You have to be careful though, because laws and coverage specifics vary from place to place and policy to policy. If you find yourself in a foreign province or country without the correct coverage, you could be on the hook for huge sums of money.
Use this guide as a starting point, then double check with your insurer and the rental agency to make sure you’re covered.
Vastly Different Types of Coverage
When you arrive at the rental car counter, you will typically be presented with up to four types of insurance and coverage you can buy: collision/loss damage waiver, liability insurance, personal accident insurance, and personal effects coverage.
Not getting them mixed up is incredibly important - people often think they can decline liability insurance because their “credit card covers them”. That one mistake could easily bankrupt you if tragedy strikes.
Here’s how they differ:
Collision & Loss Damage Waiver (CDW & LDW)
Cost: up to $30 per day.
This covers the car you are renting itself, and nothing else. Having this coverage means that if anything happens to the car - like fire, theft, or accident - the costs will be paid for. This is similar to comprehensive and collision insurance in regular auto policies, but for rental vehicles.
Rental car companies have now started charging additional fees for lost revenue while the car is being repaired, administrative fees for handling the repair, towing costs, and even depreciation on the resale value of the vehicle for it having been in an accident.
The expensive CDW & LDW policy offered by the rental car company covers these additional fees, but other coverage you have may not, so you need to check.
Cost: up to $10 per day
Liability insurance covers you for damage and injury you may inflict on other people and their property while driving a rental car. This is where costs can really skyrocket if an accident happens.
If you happen to get sued for medical injury, the lawyer fees and settlement costs could go into the millions of dollars and easily bankrupt you.
You want to make extra sure you have this coverage - paying for a $30,000 car is manageable for most people without complete financial ruin - but there’s no way out of a million dollar judgment against you.
Liability insurance is the most likely kind of insurance to be included in your rental. It is often mandated by provincial or state law and some rental car companies simply include it automatically as part of their service.
You may also encounter “supplemental” liability insurance (SLI) which is coverage above and beyond the minimums they are required to provide. Be sure to ask what those minimums are. Chances are you don’t need anything supplemental.
Personal Accident Insurance (PAI)
Cost: up to $10 per day
Even if you have liability insurance and you get in an accident, nobody is paying your medical bills or a lump sum payment if a death were to occur. That’s where PAI comes in. It covers medical costs for you and your passengers and sometimes also includes lump sum accidental death and dismemberment (AD&D) payouts if a death or body part loss occurs.
Personal Effects Coverage (PEC)
Cost: usually bundled with PAI
Personal effects coverage pays for your personal property if it is lost, damaged, or stolen while you are travelling with your rental vehicle. It is usually bundled as an extra feature of PAI and is not something you pay for separately.
Plus a travel bonus worth another $150.
Offer ends December 21, 2018.
Declining CDW & LDW Coverage
CDW & LDW is the most expensive coverage and also thankfully the easiest to decline. Here are your options:
1) Use your credit card
The majority of premium credit cards with an annual fee offer rental car collision and loss insurance. Coverage typically tops out at $65,000 and does not cover exotic or luxury cars. If your card offers adequate protection, you can safely decline the CDW or LDW offered by the rental company and save up to $30 daily.
Credit card insurance policies are often found online with a little digging through your bank’s website. They are also was included in the welcome package you received when your card arrived by mail. If all else fails, call the number on the back of the card and ask them to email it to you.
Credit card insurance is always secondary insurance, so if you, your work, or the rental car company has another policy that covers loss and damage it will kick in first and any remaining amount will be covered by your card’s policy.
To be covered you simply need to charge the full cost of your rental to your credit card.
2) Use your personal auto insurance
Many personal auto insurance policies offer what is known as legal liability for non-owned vehicles. This will cover damage or replacement costs for rental cars and any other vehicle you drive that you do not own.
These policies often have a set deductible of around $250 that can differ from the deductible on the rest of your policy. If you have both this coverage and credit card coverage, you can feel pretty safe declining CDW & LDW at the rental counter.
Declining Liability Coverage
Liability insurance is the one you want to be 100% certain you have because, depending on who injure and what you damage, costs can easily run into the millions.
1) Use your personal auto insurance
The 3rd party liability coverage you have with your auto policy should also give you liability coverage when renting a car. Whatever your deductible and maximums are for that coverage typically apply if you injure someone or damage property while driving your rental.
There are a couple of gotchas to watch out for...
First, most Canadian policies only provide coverage within Canada and the United States. If you are travelling further than that, you need to find some other source of liability coverage. Call your insurer before you rent and ask them directly about their global coverage.
Second, a few Canadian provinces like Saskatchewan, Manitoba, and Quebec have “no fault” insurance. Ontario has partial no fault insurance. That means your insurer always covers the risk to you no matter who causes the accident. Third parties must make claims through their own insurers.
If you live in one of those provinces, the liability of other people may not be covered if you are at fault when out of province or country. Your insurer may offer add ons or an umbrella policy to give you better coverage if you need it.
2) Use the rental agency’s free coverage
Depending on the province, state, or country you are travelling in, there can be laws that require rental agencies to provide a basic minimum amount of liability coverage.
The amount may be lower than you could need in the worst case scenarios, so call and ask them about that before you go. If they provide adequate coverage and your auto insurance policy isn’t in effect, you could still be safe to decline.
Declining Personal Accident Insurance
You want to make sure you and your passengers have emergency medical coverage and income replacement if you are unable to work due to an accident while renting a vehicle.
1) Use your credit card travel medical coverage
Travel medical coverage is a much rarer credit card feature than CDW & LDW and often applies for a shorter timeframe - ranging all the way from 3 to 60 days.
Many premium travel credit cards do offer it though with varying degrees of coverage and maximums. You will have to read your policy to see exactly what you have if you have it at all. If you do have it, it should cover you for any medical emergency you have while travelling including in a rental vehicle.
Even fewer cards offer lump sum AD&D coverage for rental cars. Most do offer this when travelling on common carriers like airplanes or trains, but rental cars are excluded.
2) Use your health plan’s travel insurance
Many work or personal health plans come with a travel insurance component that includes emergency medical and other fringe benefits. If you do have this add on, then you will be covered when renting a car as well.
3) Use your personal auto insurance
Your personal car insurance policy covers your own injuries in addition to those of others. This is often called Accident Benefits in the policy itself and will pay for medical, rehabilitation, and funeral expenses along with lump sum death benefits and loss of income payments.
Depending on your province and insurer, these benefits can extend to you when travelling and renting a car. However, generally they are only applicable inside Canada and the United States.
4) Use medicare from your province
Medicare coverage still typically applies even if you are travelling out of country - but the rules on this can vary by province.
You need to be aware that the cost of medical services can be much more expensive in other countries and medicare will typically only cover the normal cost for the same service in your home province. At least one form of supplemental travel medical insurance is recommended.
5) Buy one-time or annual travel insurance
Travel insurance is a big money maker for travel companies and insurers alike. It’s expensive to buy, but buying it in advance might be cheaper than paying at the rental counter.
Think outside the box when looking for this insurance. Even if your credit card doesn’t offer it for free, it often is available as a one-time or yearly add-on to your credit card. If you take a few trips a year, it quickly pays for itself.
Getting Free Personal Effects Coverage
If you plan on declining PAI, then you’ll also be declining PEC. Finding this coverage elsewhere can be a bit tricky. The best option is a credit card that offers either all-encompassing personal effects coverage, which is extremely rare, or getting one that specifically offers rental car personal effects coverage.
A second option is your home or renters insurance policy. Often your personal effects are covered even when travelling but making a claim is often not worth it due to high deductibles and rate increases resulting from making a claim. If you happen to lose a lot of high value items though it is an avenue you can explore.
Chances Are You ARE Covered
So as you can see, navigating all the insurance policies and coverage available to you is quite a minefield. The good news is you are often covered from multiple angles by existing insurance you already have and don’t need to pay extra at the rental counter.
If you’re looking for a better deal on car insurance or you’re getting it for the first time, compare rates quickly online with LowestRates.
My advice: take the time to figure out exactly what coverage you have when travelling one time, make notes about it, and then use that information to know you are protected and save yourself money for years to come.