Car Insurance for Rental Cars

Renting a car comes with many of the same responsibilities as owning your own vehicle - especially as regards the care you must take to keep the car in one piece, and safe. Therefore, considering the similarities in accountability, why wouldn't you consider hire car insurance? Insuring your rental car is like any other type of insurance - comparing your options is the key to getting a high value policy, at a reasonable premium.

Car rental insurance, also known as car rental excess insurance or a collision damage waiver (CDW), can provide peace of mind and protect you against financial loss, not to mention the inconvenience of being without a vehicle.

Understanding Car Rental Insurance:

Car rental insurance acts as a safety net, covering you for any damage to your rental car during your rental period. Most rental companies offer limited cover, leaving you vulnerable to hefty charges for any damage sustained. 

Purchasing an insurance policy from an external insurance provider usually provides broader cover at a fraction of the cost of any policy the car rental agency tries to sell you. The policy features to look at closely are:

1. Rental Excess: The excess is the amount you will need to pay the rental company if the car gets damaged or stolen. Usually the rental agency will offer you a low excess product - which means you’re up for a very large premium. An external insurer will likely be more flexible about adjusting your excess to reduce your premium. This can amount to significant savings for you.

2. Additional Benefits: Some car rental insurance policies offer additional features, such as cover for damage to tires, windscreens, and personal belongings, enhancing your overall protection.

3. External Company Car Rental Excess Insurance: This refers to taking out a specialised policy tailored to rental vehicles, often at a more affordable rate than the rental company’s excess reduction cover. It provides comprehensive protection and additional benefits, making it the preferred choice for many renters.

4. Rental Company Excess Reduction Cover: While convenient, purchasing excess reduction cover from your car rental company can be costly and often only includes limited cover. It can result in higher out-of-pocket expenses in the event of a claim.

5. Travel Insurance Policy Inclusions: Some travel insurance policies include cover for hire car damage, making this a convenient and cost-effective option for travellers. However, there may be limitations to this cover, such as exclusions for rentals in your home city or short trips. Check your policy carefully.

6. Credit Card Travel Insurance: If you have travel insurance through your credit card, you may have access to excess rental car cover. However, specific conditions may apply, such as using your credit card for the rental transaction. That doesn’t mean it’s not a great idea; just that you need to check the fine print.

The Pros and Cons of Car Rental Insurance:

Pros:

• Cost-Effective: Car rental insurance offers affordable cover compared to rental company excess reduction policies.

• Additional Features: Many policies include additional benefits, enhancing your overall protection.

• Peace of Mind: Having insurance cover alleviates concerns about potential financial liabilities associated with rental car damage.

Cons:

• Additional Cost: Car rental insurance entails an extra expense, and it may not be fully utilised if no claims are made.

• Potential Exclusions: Policies may have clauses or exclusions that limit your cover.

Frequently Asked Questions

Will my regular car insurance cover my rental car?

Some comprehensive car insurance policies may provide cover for rental cars, but it's definitely something to check with your insurer beforehand.

Is a rental car agreement the same as an insurance contract?

No, a rental car agreement outlines the terms of your rental. Your car rental insurance policy provides cover for any damages that can occur to your hired car.

Can I receive car rental insurance cover for an excess charge if I breach my contract with the rental company?

No, car rental insurance does not cover excess charges resulting from contractual breaches.

Is rental car insurance really worth it? 

Consider this: To rent a basic economy car from Sydney Airport for a week through Avis, you'll face a minimum daily rate of $120. 

However, if you want to decrease your excess from $5445 to $838 for the same rental period, you'll have to shell out an extra $71 per day. That’s $191 per day which can really add up over time. 

(These prices are accurate as of January 2024.)

Are there better options available to reduce your excess without having to purchase it directly from the rental company?

The encouraging news is that there are alternative car rental insurance products on the market that could potentially save you up to $61 per day on your rental. Instead of feeling pressured to purchase your excess waiver at the rental counter, you have options, like:

• Utilising the car hire excess cover included in your travel insurance policy.

• Purchasing a standalone car rental insurance policy from a different insurer.

For a week-long rental, both of these alternatives are typically more cost-effective than opting for the excess waiver offered by your rental company. Additionally, standalone policies often come with fewer exclusions.

The downside is that these alternatives may not be as convenient. In the event of an accident with your rental car, you might be required to pay for any damage upfront, and then submit a claim to your chosen insurer for reimbursement.

Car rental insurance offers essential protection and peace of mind, covering damages to rental vehicles and minimising financial liabilities. By understanding the options available to you and carefully weighing the pros and cons, you can make an informed decision and ensure a worry-free car rental experience.

Sources

Sixt

Car Rental Excess Insurance

Allianz

Europcar

Travel Insurance Tips

Rental Cover

Financial rights when you rent a car

Paul Coughran is the General Manager of Emerging Verticals at Compare Club. Paul has over 20 years of experience across a wide range of industries including Banking and Finance, Telecommunications and Energy. Paul leads a team of trusted experts dedicated to helping individuals make informed decisions about their insurance and utilities needs.

Meet our car insurance expert, Paul Coughran

Paul's top car insurance tips

• 1

  Regularly compare your insurance policies – You could be paying for cover you don’t need. Shopping around every so often can save you a fair bit, maybe even hundreds each year.

• 2

  Don’t just look at the premium—check the excess too. While a higher excess might bring down your premium, remember you’ll have to fork out more if you do need to claim.

• 3

  Double-check what’s included in your policy. Extras like windscreen cover or roadside assistance might not be part of the deal and could cost you more.

• 4

  If you don’t drive much, consider usage-based insurance. Some policies base your cost on how much you actually drive, if you work from home or only use your car for short trips this might be a much better option.