Car hire is no longer just something people do when they go on holiday and want the freedom of getting around as and when they please. It is becoming increasingly common, for example, for people who have always bought cars on finance to decide they are better off on a long-term lease - the monthly payments tend to be lower and they can upgrade to a better model much faster.
Similarly, households looking to save a penny or two are starting to question whether they need both of those cars sat on the driveway. Especially for the growing army of stay-at-home remote workers who don’t need a vehicle for the daily commute, options like car share clubs provide a great alternative for those as-and-when motoring needs.
Whatever your reasons for hiring a car, it pays to familiarise yourself with how insurance for car rentals works. You’re entering a different space altogether to standard car insurance, so it’s all too easy to get caught out if you don’t take time to understand the basics.
Common misconceptions
For example, a common misconception people have is that their existing car insurance will cover them for any car they drive, including hire cars. At one time, it was indeed common for comprehensive policies to include third-party cover for any vehicle you drove. But due to rising claims costs, many insurance companies have started to pull such provisions from their policies. Besides, even the most comprehensive of policies rarely extended beyond a single country, so you would still need insurance for hiring a car abroad.
Another common misconception is that you get all the insurance protection you need included as part of your car hire package. This is where you really need to understand how car rental insurance works. Most hire firms do indeed offer some insurance cover as part of the lease terms. But aside from the fact that the details of these terms often vary from company to company, and certainly country to country, they are also quite different to the standard car insurance packages we are used to buying for our own vehicles.
Most rental packages will include what is known as either CDW or LDW - Collision Damage Waiver or Loss Damage Waiver - plus cover for theft. In practice, CDW and LDW mean more or less the same thing - they cover whoever is hiring the car for any damage incurred while they are responsible for it, as well as theft. However, the types of damage included in the terms of CDW and LDW are rarely comprehensive.
It’s quite common for people driving a hire car to have an accident only to find that the rental insurance didn’t cover them for the windscreen, or the tyres, or the undercarriage and so on. In addition, most rental policies will include a fairly hefty excess that the driver has to pay before the CDW/LDW kicks in. That all adds up to accidents in a rental car often turning out to be very expensive for the customer, if they rely on the insurance the hire firm offers them alone.
Third party liability
You may also have noticed that we haven’t even mentioned third party cover yet - protection for damage you might do to other vehicles if an accident is your fault. In most countries, personal car insurance is built around third party cover - drivers are usually required to have it by law as a bare minimum to protect other parties if they happen to cause an accident.
In some countries, particularly in Europe, what is known as ‘third party liability’ insurance is included in basic rental insurance packages. But this is far from universal, and is virtually unheard of in countries like the US and Canada.
That means, whenever you rent or lease a car, you should a) read the small print of any included insurance carefully to find out exactly what you are covered for, and b) take out additional insurance to fill in the gaps. Just don’t fall for the hard sell for the ‘extra’ insurance the hire company often tries to harangue you into buying as you collect the keys - you will usually end up paying a considerable mark-up for policies you could get much, much cheaper if you did your research and bought online ahead of time.
*The information in this blog is designed to provide helpful information on the subjects discussed. Please seek a professional for expert advice as we can not be held responsible for any damages or negative consequences upon following this information.