Car Rental Insurance

Covering your finances if you run into trouble with your hire car with car hire excess insurance.

Car Rental Insurance

If you’ve hired a car, it may not factor into your thinking that you could get stung by your rental company if the car is damaged or stolen. Taking on a hire car brings with it the responsibility of ensuring its safety at all costs, which is the same as owning your own car. If it’s no different in that respect, why not insure your rental car? In this guide, we take a look at car rental insurance, how it works and why you should compare to find the best deals on the market.

How does car rental insurance work?

Car rental insurance is also known as car hire excess insurance or a collision damage waiver (CDW). Put simply, car rental insurance is a policy that covers you for damage sustained to your hire car.

Generally, car rental companies won’t provide you with much coverage when it comes to their vehicles, so it’s usually advisable to take out a policy with an external insurance company rather than go with the limited options you’ll be provided upon hire. If the car you hired has sustained some level of damage, you’ll usually be charged after you hand it back. The amount your rental company deems sufficient for the damage will likely be deducted from your security deposit at the beginning of the rental agreement.

This is where your car rental insurance policy comes in handy. This will at least partially cover the rental excess you’ll have to pay, which is likely to be significant based on Australia’s average rental car prices. Buying excess reduction products with your rental company can cost as much as $30-$40 per day, whereas car rental insurance is much more affordable and can cost as little as $5-$10 daily.

If you’re renting your car for a two-week period, you could pay as little as $70-$100 for coverage potentially extending beyond $10,000 for damage to the car. You won’t break the bank with this insurance, and it can save you from having to fork out for minor hire car damage. Take a look at the example below to see what you could save comparing the two products.

What are my options for car rental insurance?

Car renters will typically be able to choose from four main options when it comes to the way they receive cover for their car rental excess.

Cost per day Total over two weeks
Company excess cover
$40
$560
External excess cover
$10
$140
Saving
$30
$420

External company car rental excess insurance

This is generally the most suitable car rental insurance option, as it’s often the cheapest and is a specialised service designed for this purpose. Some external car rental insurance policies also bring with them a number of additional features that can extend your cover beyond the basics, including cover for damage to tyres, windscreens and rooves and loss of luggage or other personal items.

Rental company excess reduction cover

While it’s perhaps the easiest option to take out, as it’s worked into the vehicle hire process, purchasing cover from your rental car company can often be the most expensive choice for the least expansive coverage. Many car rental companies will only offer a partial reimbursement, or excess reduction, meaning you’re still likely to be paying a sizeable amount out of pocket if you make a claim.

Excess insurance cover included in travel insurance policy

This is only viable if you’re travelling, but it can be an effective one. Bundling different types of insurance together under one policy can save you money overall, while some travel insurance policies will already contain coverage for hire car damage. It’s slightly more limited in its applicability than the other two choices, as it can’t be applied to a car hire in your home city, and is less viable for short trips.

Excess insurance cover included in credit card travel insurance

If you’re paying for travel insurance through your credit card, your access to excess cover may be more limited. Conditions may also be stricter regarding who can be covered under the insurance (e.g., only the card holder) and limiting you to paying for the insurance on the card used for the rest of the insurance.

The pros and cons of car rental insurance

Here are some of the major advantages and disadvantages of car rental insurance.

PROS

Affordable service

Compared to the cost of cover that you’d be charged by your car rental company, taking out a specialised car rental insurance policy could save you hundreds of dollars over the course of a short hire

Additional built-in features

Having further coverage added to your policy, on top of the lowered cost, can ensure that your finances will be cushioned further in the event of your car sustaining some sort of damage

Peace of mind

Taking out a car rental insurance policy will help assuage any fears of finding yourself in a sticky situation with a rental company, especially far from home.

CONS

An additional cost

At the end of the day, though, car rental insurance can cost you quite a bit for a service you likely won’t end up needing.

Potential exclusions

You’ll find that policies will have a list of clauses or exclusions that exempt your insurer from covering your damage. For example, damage caused if you’re travelling just a fraction over the speed limit will cost you any coverage, as will running a red light or stop sign.

Frequently asked questions about car rental insurance

Still looking for an answer to your burning question? Here are some of the most common car rental insurance queries

Will my regular car insurance cover my car rental?

Potentially – some comprehensive car and Third Party Fire and Theft insurance polices will cover the cost of a rental car and part of its excess in certain circumstances, or offer it as an optional extra. You’ll want to check with your insurer prior to agreeing to an insurance policy if you’re looking for coverage in this area.

Is a rental car agreement the same as an insurance contract?

No – a rental car agreement only confirms your responsibility as the renter and the various charges that come with it. You shouldn’t treat a rental car agreement and an insurance contract as the same thing, as agreements are generally more limited and carry a greater number of exclusions.

What other types of vehicle can I be covered for on a car rental insurance policy?

When travelling, you may need more than just a sedan or station wagon. Campervans and 4x4s are usually covered by rental car insurance, albeit with weight limitations (e.g., most insurers will cap the maximum weight at 4.5t for a campervan). Motorbikes are also typically covered by this insurance.

Does my car rental insurance cover damage to another person’s property?

Yes – you can receive coverage for damage to another person’s vehicle or property under some rental car insurance policies with Third Party Liability cover. This may not be the case across the board, though, so check with your insurer ahead of time.

Can I receive car rental insurance cover for an excess charge if I breach my contract with the rental company?

No – car rental insurance providers won’t reimburse you if your excess is in relation to a breach of contract, no matter how fair or unfair it may be.

Am I covered by my insurance policy if my rental car is stolen?

Yes – depending on the insurance policy. You can usually take out a loss damage waiver (LDW) to cover the cost of your rental car if it’s stolen.

Will I be covered for a single-vehicle accident excess?

You may not be – many insurance companies will distinguish between accident damage caused by more than one vehicle and that caused by you alone. Even if you hit an animal and cause damage to your rental car, you could be charged a single-vehicle accident excess. Always check with your insurer prior to signing off on the contract and pore over the details.