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Rental Cars and Your Car Insurance: Everything You Need to Know

February 19, 2013

Rental Cars and Car InsuranceMarch break is around the corner and whether you rent a car frequently or only occasionally for a road trip, it’s important to understand how your existing car insurance applies to a rental car, and what the risks may be of choosing not to purchase additional coverage from the rental car company. Before you get behind the wheel of a rental, get all your questions answered and all of the facts straight.

Your Car Insurance and a Rental Car

Most people believe that their existing car insurance will transfer over to any car they rent. This is only partially true and could result in problems if you don’t verify it before you go. Many car insurance professionals advise that you actually add rental car coverage as an option on your policy that comes with an extra premium. If you haven’t elected to add this coverage to your policy, you may actually have little to no coverage at all. If you rent cars frequently, be sure to ask for this coverage when shopping around for car insurance quotes.

Contrary to common belief, car insurance does not follow the driver; instead it follows the car. That means you are not automatically covered in any car you drive, including a rental car. With the addition of rental car coverage on your policy, however, you can extend the coverage on your policy to any car that you choose to rent. This means that the same limits of your policy will apply to the rental car, including comprehensive and collision coverage.

Insurance Through the Rental Car Company

Most car rental companies will try to sell you their coverage which covers you for the rental car. This is usually a per-day rate and provides you with coverage for any damage to the vehicle that might occur while you are in possession of the rental.

The coverage offered by rental car companies is a good idea for anyone who does not have rental car coverage on their own policy; but even if you do have rental car coverage, you might want to consider the extra coverage anyway. There is one simple reason for this: in many cases the rental car company could require you to pay for damages up front and then leave you to seek reimbursement from your own insurance company. That could mean a large up-front out-of-pocket expense if there is any serious damage, or if the car is stolen and you are responsible for replacing it.

It’s up to each driver whether they are willing to rely on their own insurance or choose to spend the extra money on additional coverage. For many people, the insurance on their own policy is enough to provide peace of mind that even if there is some initial up-front cost, they will not be left holding the bag if something goes wrong in a rental car.

Important Things to Remember

Remember that when you use your own insurance to cover you when driving a rental car, you will need to stick to a few rules to ensure the coverage applies. Only drivers who are named on your policy will be covered while driving the rental car, so don’t let anyone else get behind the wheel. Most car insurance companies have limits on who can drive as well; usually the named renter and that person’s spouse are permitted to drive, unless you name another driver on the rental contract. But again, unless that person is named on your policy they will need to obtain their own coverage while driving the rental.

When renting a car away from your home province, it’s important to follow all of the local laws, rules of the road, and driving restrictions. Your insurance could refuse you coverage if you are found in violation of certain laws, especially graduated licensing restrictions.

Whether you choose to use your own insurance or purchase from the rental car company depends not only on your risk tolerance level but also on how often you rent a car. Those who rent only occasionally may choose to simply purchase the rental car company’s coverage rather than add the coverage to their policy. If you rent frequently, however, the cost of adding the coverage to your policy is likely to be far cheaper than the cost of buying coverage every time.

Whatever option you choose, make sure you know you are covered and what the procedure will be for dealing with claims before you sign anything with a rental company. That way, in the unlikely event that something goes wrong, you will be prepared to deal with it, and not be caught off guard.

  • Tony

    The article does not mention rental car insurance provided by credit card companies. I think this is a serious omission

    We have a TD Select Gold VISA card (no annual fee) and it provides this coverage. I have read the coverage document right through and very carefully, and find the coverage is more than satisfactory.

    Each reader will have a different standard of what they expect – and a different appetite for reading the pages of fine print! – but credit card coverage is a viable option for most people.

    In an online article, we can’t expect you to explain every card’s coverage in detail; but we can expect you to mention the option and give pointers to watch for.

  • Tim Rogers

    In the event that you have rental coverage on your own policy and you purchase coverage from the car rental company when you rent a car which insurance covers damage if there is an accident. What happens if you are not at fault. Thanks

  • JOE

    YOU SHOULD HAVE MENTIONED THAT IF YOU TAKE THE ADDED INSURANCE ON YOUR POLICY FOR RENTAL CAR COVERAGE IT IS ONLY GOOD FOR 30 DAYS AND YOU CANNOT EXTEND IT BEYOND THE 30 DAYS.

    I HAVE NEVER GOT AN ANSWER WHY IT CANNOT BE EXTENDED?

  • Nick – InsuranceHotline.com

    Hello Tim,

    If you purchase additional insurance coverage from the rental company, that insurance will likely cover the damages. Please check with the rental company when renting a car for full details.

  • Nick – InsuranceHotline.com

    Thank you for your comment, Tony. That is a great point and we have covered this in a previous article. Please see this article: http://www.insurancehotline.com/coverage-rental-car/.

  • Alfredo

    Question: In the event of an accident while driving a Rental car with additional coverage. If I make a claim would it effect an increase on my own auto insurance?

  • Mary D

    Would the additional coverage on your own insurance policy cover you for third party liability – Dollar just recently told me it didn’t. If I have insurance coverage for a rental vehicle on my car insurance policy, can my own car be driven by another insured, while I am also renting a car?
    Thanks

  • Iurie

    Hi
    Is liability coverage included into rental rates (for people who don’t have personal auto insrance)?
    Rental agencies only offer coverage for rental cars.

  • william

    There is no credit card that will cover you for liabity, only collision. So if you hit someone, they will repair the vehicles, you are on the hook for everything else. Like legal fees, medical fees etc. Purchase the extra coverage through you vehicle policy, its cheep. The credit card coverage is only partial coverage.

  • Sid

    What about credit cards (Visa or Amex) that offer car insurance while you are on vacation such as for Florida? I have used that back in the ‘back in the ’90′s but never had a claim. Thanks. Sid.

  • John

    A couple of years ago online I pre-rented a car in Edmonton. When I arrived to pick up the car at the counter they gave me a choice of renting any vehicle they had for the same price. So I chose a pickup truck because I would have better visibility and paid with my MasterCard which covered the collision insurance. Not so! The trip was uneventful , however weeks later while reading the MasterCard fine print I discovered it does not insure any truck.

  • http://www.insurancehotline.com/ InsuranceHotline.com

    Hello

    Check with your Canadian insurance professional (agent or broker), they may be helpful

    Thank you

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