How does insurance work with a rental car?

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Things to know...
  • When you rent a car, you aren’t required by law to buy the supplemental rental insurance that the company sells
  • If you own a vehicle and you have car insurance, the car insurance that you have will extend to a rental vehicle
  • For personal insurance to cover rentals, the rental agreement must be in the name of at least one named insured
  • Your liability and physical damage coverage will extend to the rental car while you or covered drivers are driving it
  • If you file a claim for damage to the rental car, you’ll still have to pay your deductible like you would on your car

Renting a car can be more expensive than you think. When you’re quoted the daily rental fees, you think you’re getting an incredible deal. After you add in the sales tax and location-specific fees, the cost to rent a car goes up exorbitantly. The final cost for the rental period goes up even more if you add insurance to the contract.

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You may feel obligated to buy the auto insurance that the rental agent offers you but you’re not. In fact, the agency can’t require that you buy the insurance as a condition to rent a car or they are violating state law.

Before you pass up the option to buy supplemental rental insurance, here’s what you should know about how your insurance protects you and the limits that exist:

Do you have to have insurance to rent a car?

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Surprisingly enough, the answer to this question is no.

You must hold insurance is most states when you own a vehicle, but when you’re renting a car or borrowing a vehicle that you don’t own the mandatory insurance laws don’t apply to you. Under state law, you can’t be fined or penalized for driving a rental car without insurance, but it’s still risky.

Who is responsible for insuring the rental car?

It’s the vehicle owner’s responsibility to buy insurance on a car, even when it’s being rented to others.

The type of insurance that a rental car company that owns a fleet of different vehicles is different from the type of insurance that you buy on your own cars. Typically, larger insurance companies will carry a commercial policy that pays for damages and liability claims.

Can you be held responsible if the rental is damaged?

If you were to browse through all of the fine print in your rental agreement, you’d find a whole section that describes your liabilities.

All contracts will contain a statement that says that you’re responsible for damages sustained to the rental while it’s in your custody. You must pay for the repairs and for lost income if you or anyone else is driving the car.

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Can you be held responsible for damages to others while driving a rental?

Not only do you have to pay for repairs to the rental, you could also be responsible for paying third-party claims if you’re the at-fault driver after a crash.

Third-party damages may include repair bills, medical treatment costs, court costs, and settlements for pain and suffering. These expenses could pile up if you don’t have insurance.

In most cases, the injured party will file a suit against the driver of a car after the accident. If you don’t have any insurance, the claimant can go about filing a claim against the rental company.

If this happens, it doesn’t release you from any liability, it only means that the company must file a claim through the insurer to defend them against the claim.

How does an existing insurance policy help protect you when you’re renting?

If you own a car, your insurance will protect you while you’re renting. The coverage is afforded under the Temporary Substitute provision of your policy. This is a major reason why you don’t need to buy all of the coverage that’s offered by the company when you have a standard Personal Auto Policy in place.

What type of coverage will protect you while you’re renting?

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Under the Temporary Substitute provision of your auto insurance policy, all of the coverage that you carry will protect you while you’re driving a rented car. Liability coverage extends when you’re driving pretty much any car that’s listed on the policy or that you’re borrowing.

Here are coverage options that you can file claims against:

  • Bodily Injury Liability
  • Property Damage Liability
  • Uninsured Motorist Protection
  • Medical Payments
  • Personal Injury Protection
  • Comprehensive
  • Collision

What type of coverage is offered through the rental agency?

If you don’t have insurance or you’re only listed as a driver under the policy rather than a named insured, you won’t have any type of coverage. This is when you need to contemplate paying the extra daily charge for some type of supplemental protection.

Most of the time, companies offer four types of protection. These forms of protection include:

  • Supplemental Liability Insurance (SLI) – provides $1 million of blanket third-party liability coverage for claims made by others
  • Personal Affects Coverage (PAC) – pays for your belongings when they are damaged in a car accident or stolen while in the rental
  • Damage Waiver – waives your responsibility to pay for repairs if the car is damaged in an accident, stolen, or vandalized
  • Personal Accident Insurance (PAI) – pays for your medical bills if you’re injured in a car-related accident while you have the rental in your custody

How much does it cost to buy the supplemental insurance?

The cost for each type of insurance through rental companies can vary. In most cases, you’ll pay around $10 to $30 per day for the damage waiver, which is the most popular option that people choose to carry.

The SLI coverage will end up costing an average of $10 and both the PAI and the PAC options will tack on another $5 per day.

If you do the math, you could wind up paying $40 more per day for insurance on a rental.

Instead of doing this, build up your policy for added protection. If you have insurance gaps, get instant car insurance quotes online and see if you can buy a policy that protects you in your car and in a rental too.

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