Car Rental Insurance Explained Simply

In this post, you will discover the three simple pillars of rental car insurance, what your existing coverage probably includes, what you actually need and how to get maximum protection for minimum money, regardless of what country you are renting a car. And lastly, you will discover one of the biggest scams and how to avoid it

But let’s dive in

DISCLAIMER: I am not a professional, legal, or insurance advisor. All of the information you’ll find here is based uniquely on my personal experience, renting cars across the world for over 20 years. Please use it as a guide, but always check the fine print of your specific rental agreement

Pillar 1: Protecting Others (Liability)

The first pillar is Protecting Others. This is the Third-Party Liability Insurance, or TPL. It is almost always included in your rental price by law, and it covers damages or injuries to other people or other properties in case you cause an accident. 

Typically, you don’t need to worry about the TPL being included, but you must worry about how much it covers. Because this is where the world splits.

In most of Europe and Australia, the mandatory coverage is generally high, into the Millions of dollars/euros. But in the US, the TPL is often quite low, at the state-mandated minimum, which is into the tens of thousands. If you rent a car in Costa Rica, you will have the same issue.

Pillar 1: Supplemental Liability Insurance

If you are renting in the US or Costa Rica, for example, you need to be aware of Supplemental Liability Insurance, or SLI. This is the insurance that brings your liability coverage up to a safe level. 

Without it, you could seriously risk massive financial losses. My key tip here is always to check the liability limits of your car rental 

And it’s easy enough to do, just go into the Rental Conditions, check out the Included Insurance and verify the Third Party Liability (or TPL) section. Make sure to be comfortable with the TPL coverage (I suggest at least a Million Dollars/Euros) or add SLI to top it up.

Pillar 2: Protecting the Car (Damage)

Let’s now move to the second Pillar, Protecting the Rental Car.

This is the part that causes the most confusion: the Collision Damage Waiver, or CDW, sometimes called the Loss Damage Waiver, or LDW. 

CDW covers the damages to your rented car even if the accident is your fault. This is often included for free; however, the keyword here is Excess, also known as the Deductible. 

The excess is the fixed amount of money that you will be out of pocket before the rental company’s coverage, CDW, starts paying. In many countries, this basic excess can be quite high at $3,000, $5,000, or even more.

Keep in mind that the excess typically increases with the level of the car. So, for example, a luxury car has a much higher excess than an economy vehicle.

So far, I found the highest excess when renting a car in Australia, usually between $5,000 and $7,500.

Pillar 2: The Theft Protection

Paired with the Collision Damage Waiver is Theft Protection. This covers the car if it is stolen. Just like the CDW, it usually comes with its own excess or deductible that you must pay if the car is stolen.

Of course, there are countries where Theft Protection is a must-have and others where a stolen car is a very rare event.

So, if you damage or lose the car, your primary goal is to eliminate that high excess. And now let’s discover more about this excess and what we can do to reduce or eliminate it.

Pillar 2: The Zero-Excess Solution

So, how do you get what’s called Zero-Excess or Full Insurance? There are three main ways, which differ in price and also in how easy the claim process is.

The first is to buy the Super CDW or Zero Excess Insurance, or Full Insurance, straight at the counter. Expect to pay between $20 and $50 a day, sometimes more than the cost of the rental itself. It is the most expensive Full Insurance, but it offers the easiest process: if you crash, you just hand the keys back, no paperwork.

The second way is to check your credit card. Many premium travel cards include some form of CDW coverage. This can be fantastic, but you must read the small print: My credit card, for example, pays only part of the excess. 

You should also check if it covers the entire rental period, the vehicle you intend to rent (there are exclusions for special cars) and the country where you will rent the car. In doubt, call your insurance and ask for a confirmation in writing if it is unclear on the policy.

Personally, for the past five years, I have been booking my cars on a comparative website called DiscoverCars that works as an Airbnb for car rentals, where all providers are rated between 5 and 10 stars based on genuine customer feedback.

I usually filter above 8 or 9 stars to get the most trusted company, and I just book from that shortlist. One of the best features of this website is the full insurance offered for just 8 to 10 dollars or euros a day. And this full insurance also covers roadside services, which is super important if driving far from major towns.

What is the downside? The claim process is a little different. If you damage the car, you first pay the full excess to the rental company, and then you send the invoices to DiscoverCars for a full refund within one or two weeks. You save money, but you are out of pocket for that short period.

Pillar 3: Protecting You & Your Stuff

The third Pillar is about protecting yourself and your stuff.  You can usually skip these if you have good travel insurance. 

For example, the Personal Accident Insurance (PAI) covers medical costs, but it is likely redundant if you already have travel insurance, maybe already included in the credit card. The same can be said for the Personal Effects Coverage (PEC), which may also be covered by your home content insurance. 

The only one to consider is Roadside Assistance Protection (RAP), which covers non-accident issues like flat tyres and lost keys. If you’re driving in the remote countryside, this is worth the peace of mind, especially if you rent a car in Thailand.

In saying that, the full insurance on the comparative website I previously mentioned already includes roadside assistance, which is another reason I usually buy it there.

Tips to Protect yourself and avoid possible scams

Nobody likes scams, but unfortunately, they do happen. One of the most annoying and expensive ones is when the providers claim pre-existing damages, like small scratches or dents, when you drop off the car.

Of course, try to add to the rental contract all the damaged parts of the car; however, trust me, this may prove very hard, especially after a long, tiring flight or if you pick up the car at dark. 

My ultimate tip is to always take pictures of the car’s interior and exterior before and after the rental, including the rooftop and the undercarriage of all four sides of the car. This is your proof against any arguments or claims for pre-existing damage, like the notorious cigarette burn. 

These photos will be super valuable even if you have full insurance, because you will avoid any paperwork when you drop off the car, which I find very annoying if I have not caused the damage.

Key takeaways

By now, you should have a clear understanding of all the possible insurances and, more importantly, how to avoid paying more than necessary.

I must also say that whenever I encounter some special insurance or unique situations in specific countries, I usually dedicate a full video to that. Like I did a few weeks ago for car rental insurance in Australia, or for car rental insurance in Costa Rica, where being scammed is more of a norm if you are not aware of all the tricks. 

The most important key takeaways of this guide:

• Check TPL limits to avoid low state-mandated minimums.
• High deductibles mean big out-of-pocket costs if crashing.
• Third-party insurance is much cheaper than rental counter rates.
• Travel insurance usually makes Personal Accident Insurance (PAI) redundant.
• Add Roadside Assistance for peace of mind in remote areas.
• Photograph the car’s interior, exterior, and undercarriage before driving.
• Only book reliable providers, like 8+ star-rated on DiscoverCars, to avoid scams.