Insurance Basics for Car Rentals

The next time you rent a car on holiday, make sure you have the rental car insurance facts and figures at your fingertips. Since rental car insurance is still a relatively novel concept for a lot of people, not many bother with the fundamentals of the policy that comes with the car rental. Admittedly, the rental car insurance contracts are complicated and hard to grasp, but the flip side of this is that if you don't read through the documents carefully, you could be faced with a severe information shortage if a situation arises where you have to submit a claim.

More importantly, if you don't know enough, you could end up wasting money. The fundamental fact about rental car insurance is that you are only required to take out liability insurance by law, which usually costs about $10 extra per day. All the other policies -- which may include passengers and the rental car - are optional, and prices for these will vary from company to company and state to state. However, as a ballpark figure, if you take the full coverage option, including liability, passengers, and the rental car itself, you will probably end up paying about $25-$30 per day.

So what do these options entail, exactly? As we have mentioned, liability insurance is the only kind of insurance that you are legally required to take out on your car rental. As many of you are probably aware, liability insurance covers you if you injure another person in an accident. In many cases, your personal auto insurance policy may include a liability insurance clause, in which case you don't need to take out a policy with the car rental firm at all.

Likewise, you may not have to take out insurance on the rental car from the rental company because many credit card companies, including Visa and MasterCard, automatically offer this insurance if you pay for the car rental using one or other of the cards. Of course, you need to check with your credit card provider about the coverage, and if you do find that such coverage is on offer, you effectively don't have to take out a separate rental car insurance at all, because your own auto insurance covers liability, and your credit card covers the rental car.

There is a third kind of coverage option that car rental companies offer viz., comprehensive and collision insurance, which covers the rental car if you are responsible for the damage. However, this kind of coverage is unlikely to carry over from your personal auto insurance, because comprehensive insurance is calculated according to the value of your car. So if you own a $20,000 car but rent a $50,000 one, the insurers will naturally not wish to be in a position where they have to pay out if you damage the more expensive rental car.

However, you should also know that the collision damage waiver is not really an insurance policy; but more like a guarantee that the car rental firm will pay for certain damages that you may cause to the car. Which means that at an additional cost of about $20 per day, you obtain coverage for collision damage. This waiver also covers the "loss of use" period, or the money that a car rental firm stands to lose when the car cannot be rented out. In most cases, an auto insurance policy will not cover this cost, so if you don't take out collision damage insurance with the car rental firm, you could have to pay this cost out of your pocket.

As you can see, therefore, rental car insurance is a must, whether on a business trip or simply on holiday. After all, what's $30 extra per day if it buys you complete peace of mind?

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