What is car rental insurance?

When renting a vehicle, having a car rental insurance policy may provide extra peace of mind.

That’s because when you rent a vehicle, the standard insurance that comes with the rental deal ‘in the price’ may well be limited in terms of the protection it provides.

This can vary significantly by company and country and it should be checked in detail with the rental company concerned. In many cases, the basic insurance cover may include third-party, fire, theft and a limited form of cover for damage to the hired vehicle itself. This vehicle cover is often called CDW (collision damage waiver).

In all of the above insurance categories, the basic insurance that comes with the car may be restricted to certain areas of damage and by other conditions.

One area worth examining in detail is the maximum amount payable under third party claim conditions. Courts can make very high awards to third parties affected by accidents and if they are higher than the insurance maximums outlined under the basic car rental insurance then any differences will need to be paid for by the hirer. 

As another example - even where a form of CDW is included in the basic insurance rental costs, this may often specifically exclude damage to certain areas of the vehicle including wheels and tyres, windows and glass, plus the roof. These are all areas of a vehicle that statistically are very likely to be damaged even in trivial accidents.

Another limitation is that many such basic insurance policies contain what is termed ‘the excess’. The excess defines how much of any accident related costs (including the most common type for damage to the vehicle itself) must be paid by the renter. The amount of this excess varies, but it can be high.

Considering these various exclusions and limitations, many renters feel uneasy about the extent of their financial exposures and risks when renting a vehicle.  Many may also wish to compare the value for money of the insurance provided by the car rental company.

There are two main ways of dealing with these concerns. The first is to buy ‘top-up’ insurance from the car rental company. This may reduce the excess payable in the event of an accident, increase the amount of personal liability cover and sometimes also broaden the CDW cover available to include wheels etc. Typically it will be restricted to an individual car rental agreement and it will not in itself give any insight into whether or not the insurance price offers value for money. 

The second method is to purchase a car rental insurance policy – usually from a specialist insurance company.

Car rental insurance offers the policyholder a type of cover designed to cover car hire and it may bridge the gaps in the standard insurance provided with the car rental.

These policies can in theory be used to replace much of the standard and ‘top-up’ insurance provided by car rental companies, but some caution here will be necessary. Some components of car rental insurance may be mandatory and some rental companies may not accept alternative renter provided insurance for things such as special offers or ‘all inclusive’ rates. There may also be variations here by country and law. This would need to be checked carefully in advance with the car hire company before conclusions can be made about cost savings.

Typically car rental insurance it works on the basis that in the event of an accident any claims or excesses will be dealt with directly by the insurance company and the car rental company.

Policies of this type may also offer cover for those areas of the vehicle excluded from the ‘standard insurance’ and they may give additional personal liability cover.

These policies apply to the policyholder not a given vehicle so they can be taken out to cover multiple rented vehicles over a specified period – e.g. 3 or 12 months. As they can be purchased for extended periods, they may also offer significant cost savings over purchasing top-up insurance on a rental-by-rental basis through a car hire company.

Car rental insurance, as with all insurance, will contain its own limitations and conditions. These will sometimes include specifying that the vehicle must be rented more than a stated distance from the home address of the renter, and some specialist vehicle types such as commercial, sports, vintage and very high value vehicles, may all be excluded. These conditions and cover definitions should be checked carefully before purchasing to ensure they will meet the buyer’s specific needs.