How does car rental insurance work?

2 Aug 2023    |    2 min read

Renting a car for a business trip, vacation or simply for a time when you need it, proves to be a convenient and hassle-free option, especially if it is a contactless rental. However, to have a whole stress-free experience, it is good to have some more insights on how car rental insurance works.

Car rental insurance is always paid for by credit card. It can vary depending on the age of the driver and the model of the rented car. Each company perceives “insurance” differently: some include it in the package and some consider it an add-on.

This article showcases the basics of how car rental insurance works. In this way you’ll able to make informed decisions, having a worry-free experience on the road.

Car rental insurance - an overview

The three basic types of insurance required for rental cars are damage cover, theft cover, and third-party liability:

The Damage Cover in Car rental Insurance

Starting from the damage cover, the Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW) refers to a protection that limits what a car rental company can charge for repairs. It relieves you of financial responsibility if the rental car is damaged or stolen. It typically covers the cost of repairs or the car’s value, minus a deductible.

Each car rental company can have a different Collision Damage Waiver. This leads insurance formulas to include certain elements over others. For example, policies cover the roof, while others don’t.

Additionally, almost all types of insurance or coverage have an excess (called a deductible in the USA). The deductible is the maximum that the renter will pay towards bodywork repairs. It can range from $500 to $3,500 depending on the case.

The Theft Cover in Car Rental Insurance

Theft Protection covers the cost of replacing a rental car whenever it is stolen during the rental period. It may also include the cost of repairing the car if it is damaged when someone tries to steal it. 

As the Collision Damage Waiver, the Theft Cover can have an excess or deductible. The deductible in this case is the amount the renter will need to pay if the car is stolen or if it gets damaged by third parties. Normally, many car rental companies include Theft Protection in their car rental rates, but it can also be sold as individual insurance.

car rental
The Third-Party Liability (TPL) in Car rental Insurance

In car rental, Third-Party Liability is a form of liability insurance. With  this type of insurance, the insured is protected from damages caused to a third party, such as a person or property. It can cover expenses such as hospital care, lost wages, or repairs to the car’s bodywork.

Regarding liability insurance, its presence or absence in the basic form of insurance made available by the car rental company differs from country to country. 


Understanding Third-Party Car rental Insurance: A Global Perspective

In Europe third party insurance, also called “civil liability” is held by the car rental owner and it covers possible damages to other cars and also injury to other drivers. This is a form of insurance that is mandatory in Europe to have for each car rental.

In the USA and part of South America, the third party responsibility lies with the driver of a rental car. In those countries car rental desks or websites can usually offer to the driver the so-called SLI: Supplementary Liability Insurance. 

It provides coverage to injuries caused to driver/passengers of other cars and damages caused to other cars. In some states, car rentals must have SLI, but the states’ third-party damage minimums are relatively low, so you may want to consider purchasing an SLI policy.

Australia and New Zealand respect other regulations. The car rentals, must have insurance of third party injuries: a car without this kind of insurance cannot be rented. 

In New Zealand third party personal injuries are settled through a government program called ACC which does not ascribe “fault” to either driver.

Car rental insurance - why it so important

Car rental insurance offers protection and peace of mind when renting a vehicle. Understanding the different types of coverage available, reviewing policy terms and exclusions, and exploring alternative insurance options are crucial steps in ensuring a hassle-free rental experience. By being informed, you can make the best decisions to protect yourself and enjoy your journey with confidence.

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About the author


Benedetta Biggi

Digital Content and PR Specialist at 2hire

I love running and daydreaming losing count of the distance I’m covering, cooking (and especially eating) and Drake is my spirit guide.