3 Things You Should Know About Rental Car Insurance

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After a long day of traveling, being forced to listen to an upsell for extra insurance at the car rental counter can be frustrating.

Some extra rental car insurance may be worthwhile, however. Your own personal car insurance policy may not cover rentals, for example, or maybe you don't have car insurance at all.

On the other hand, you may not want to buy insurance from a rental company if it duplicates what your credit card offers, or if your auto insurer already provides rental car coverage through your regular policy.

Here are some things to be aware of before a car rental agent tries to pressure you at the rental desk.

Know what is and isn't covered by rental car insurance

There are two types of damage waivers that are commonly sold by rental car companies: Collision Damage Waiver (CDW) and Loss Damage Waiver (LDW). They're often packaged together as CDW/LDW coverage.

They serve the same basic function. These waivers aren't necessarily insurance so much as an optional service where the rental car company will cover you if an accident or some other event damages your rental car, or in the case of theft. The waiver only covers the rental car and waives the rental company's right to pursue you, the renter, for damage.

What a rental damage waiver won't cover are hospitalization costs if you cause an accident and someone is injured — that falls under liability coverage. The rental damage waiver also won't cover risky behaviors such as drinking and driving or speeding. If you're hospitalized, your auto insurance policy will take effect.

Another type of insurance that you may be offered at the rental counter is supplemental liability insurance. This covers damage to other people's property, such as their cars, and their medical costs if you caused the accident.

This extra liability insurance may be worthwhile if your auto or homeowners insurance policies won't cover you. Another option is to buy umbrella liability insurance through the company that provides your auto or homeowners liability insurance, so that you have extra protection while driving a rental car.

When you should consider buying

If you have collision and comprehensive coverage on your personal auto policy, it will typically cover damages to a rental car. However, you will still need to pay your deductible in the event of a claim — and of course, filing a claim can cause your personal auto insurance rates to spike. Rental damage waivers will typically cover all of the vehicle repair costs, including a deductible. If you don't want to deal with the hassle of paying a high deductible, or filing a claim, you can consider purchasing the CDW/LDW coverage.

You may also be renting a vehicle with a far higher market value than the car you own. Your insurer will only pay the value of your car — not the value of the rental car that's damaged. So if your car isn't worth as much as the rental car, then you may want to consider additional coverage to account for the gap between the value of your personal car and the value of the rental car.

If you have no auto insurance, or a personal auto policy with bare minimum liability coverage, you may also want to consider adding supplemental liability protection through the rental company. This will protect you in the event you damage someone else's vehicle or property, or cause injury.

Don't overlook your credit card benefits

When renting a car with a credit card, you're likely to get insurance protections that you may not even realize you have. (See also: What Does Car Rental Insurance Really Cover On Your Credit Card?)

Many credit cards provide free collision damage protection for rental cars, with some caveats. First, you must pay for the rental in full with the card, and then decline all optional coverage offered by the rental company.

Coverage can vary, but typically a credit card's coverage will be secondary — meaning it only pays what you can't recover from other insurance. Sometimes cards do offer primary insurance, which would prevent you from having to file a claim with your personal auto policy. You may have to pay upfront for the full damage and get reimbursed later by the credit card company, and coverage is often limited to a two-week rental.

Call your card issuer to find out the specifics of what your credit card offers. If you have multiple credit cards, it's worth comparing them to find out which one offers the best coverage on rentals.

Credit card rental coverage typically excludes injuries, as well as damage or loss of personal items. Many cards also won't cover any of the rental car company's administrative fees, "loss of use" charges, or the difference between the rental car's actual value and its replacement value.

The bottom line

However you buy rental car insurance, know that you could be on the hook for the costs of an incident until your insurance provider or credit card company comes to an agreement on the cost of repairs with the rental car company.

Before driving your rental car off the lot, check it carefully for existing damage and document anything you find with photos. Then, tell the clerk at the rental counter. You don't want to end up paying for damage you didn't cause or fighting with a rental car company. That certainly won't make for a pleasant vacation.