Do I need to purchase insurance when I rent a car?

You’re standing at the rental car counter, the rental car agent asks if you would like to purchase the insurance on the car you are about to rent.  The insurance seems so expensive and they seem so eager to sell it.    What do you do?

The insurance the rental car companies are trying to sell you is called “the loss damage waiver” or “LDW”.   Purchasing this coverage from the rental car agency relieves you of any responsibility for damage to a rented vehicle.  Sounds good on the surface, but is it?  Turns out you have probably already purchased the majority of what the rental agent is offering.  When you purchased physical damage coverage (comprehensive and collision) for a car you own, the coverage will extend to any short-term rental vehicle or, in some states (Minnesota included) the coverage for the rental vehicle extends from the liability coverage you purchased for your own personal vehicle. 

Some rental car agencies hold the driver responsible for “loss of use” of the vehicle while it is being repaired.  Most personal automobile policies only provide up to $20 per day for loss of use on non-owned vehicles.  Revenue that the rental car company is unable to charge for the damaged vehicle can run much higher than that, so clearly there is an exposure but when you compare the cost of the rental car insurance ($23 per day on average) to the cost of your own insurance ($2.70 per day on average), the risk seems acceptable to assume on your own.

Insurance, in general, is designed to respond to catastrophic losses.  In the case of rental car coverage versus your own coverage the exposures just don’t seem to fit the cost of the insurance nor the chances of you even having an accident.  My advice?  Forget the LDW, drive carefully and accept the risk but save the money! 

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