Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer

UPDATED: Jul 19, 2021

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While you may not be one of the brave souls that rent their own cars out to strangers through the myriad car-sharing companies available for such options, chances are, at some point in your life, you’ll need to rent a car from an agency due to business travel or pleasure pursuits.

However, don’t discount these peer-to-peer services. They often offer rates that are much lower than rental agencies, and often, insurance is included as part of the agreement.

However, most of us rent from agencies that have cars available for pickup at the airport, so these are the types of rentals we’ll be looking at in this article. Let’s start by looking at the “insurance” products offered by the rental companies.

When “Insurance” is Not Insurance

When it comes to the actual process of renting a car, it’s likely you may feel overwhelmed by the variety of products and terms being used by the rental agent, and they’re often confusing since most of them are not true insurance policies. Rather, the products being hawked by the agent simply pass financial responsibility for the car to the rental company in the event of damage or theft of the rental car.

The three most common types of coverage that can be purchased include:

  • Collision Damage Waiver (CDW): This is also referred to as a Loss Damage Waiver (LDW). It passes on financial responsibility for the car to the rental company, meaning they’ll pay for damages to the rented vehicle in the event of a collision. Pay close attention to the fine print, as every rental car company has its own guidelines that renters are required to follow.
  • Personal Accident Insurance (PAI): The rental car provider will pay a death benefit or some of the renter’s medical expenses if they are involved in an accident.
  • Personal Effects Coverage (PEC): The provider will pay for personal possessions, like luggage, in case they are damaged while driving.

The CDW/LDW normally covers all of the potential costs associated with a rental car, including loss of revenue to the rental company if the automobile is damaged or totaled, and normally, they relieve a renter of any further financial responsibility to the renter.

We caution that there are significant terms and qualifiers attached to these products, many of which can void them if a renter violates any of them during the rental. If you drive under the influence of alcohol or drugs, or allow a person not listed on the rental contract to drive the car, so be sure you’re in compliance with the fine print.

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You May Already Have Sufficient Coverage

While you may want to purchase one of the options offered by the rental company, it’s possible you may already have rental coverage in your car insurance policy. For example, in Minnesota, every auto insurance policy has to include a minimum of $35,000 in coverage for damage to rental car.

And even if you’re not a resident of the Land of Ten Thousand Lakes, you probably have coverage for a non-owned car, so check your policy. In many situations, your existing bodily injury and property damage liability will be extended to cover any rented vehicle.

However, every insurer is unique and you have to check with them for the exact amount of coverage that might be carried over to a rental car. Call your agent or your insurance company to see if your insurance policy will offer sufficient coverage for your unique situation.

And since you’ll probably pay for the rental car with a credit card, since it’s easier and safer than carrying cash, not to mention a potential discount, you’ll want to see if your credit card company offers any rental car insurance. Again, there are limits to the coverage, and some of them are optional features. The issuer of your credit card should be able to provide you with details on what is and what is not covered, in writing, before you agree to purchase any optional coverages.

Finally, if you don’t have an insurance company because you don’t usually drive and don’t own a car, not uncommon in areas with abundant public transportation, then you’d probably want to purchase a non-owner insurance policy.