Rental Car Insurance Tips and Potential Pitfalls

After a pandemic year, Americans are going to hit the road (and each other) this summer.

With COVID-19 still limiting international travel options, it looks like our family will be traveling domestically this summer. How does rental car insurance work?

—Wesley, Portola

This is a great question. At the beginning of the pandemic when travel halted, rental car companies kept afloat by selling off their fleets of cars. Rental car companies also cut their routine orders for new cars. Now, in a summer where domestic travel is the most common option, customers may have to wait several hours for a rental car once they arrive at their destination. Going to the car rental counter with an insurance game plan will help you get through faster, especially this summer, when the continuing rental car shortage may cause added stress.

When you go to the rental car counter, the person working for the rental car company may offer you some type of insurance. Generally, what the rental car company calls insurance is really a property damage waiver, meaning the rental car company will not come after you financially if the rental car is damaged or stolen. Having coverage for property damage to the rental car is voluntary and is not required by law in California. The rental car company can also sell you liability insurance coverage, which covers any harm you cause to a third party, if, for example, you get in an accident. 

However, you already may have the coverage you need. 

Your personal car insurance may cover you if it includes liability coverage. Any additional coverage may extend to your rental car. If you do not have car insurance, you will at least need to buy liability coverage from the rental company. If you are traveling out of state, check to make sure you have sufficient liability insurance under the laws of the state you are visiting. California’s liability car insurance requirements are the lowest in the nation, as such, many states require drivers to carry more. You can purchase a supplemental liability insurance policy at the car rental counter to make sure you have enough coverage. Liability insurance sold by car rental companies typically covers liability up to $1 million.

Your credit card also may have rental car property damage coverage if you pay for the car rental with that credit card. This is similar to the property damage waiver insurance the rental car company most often tries to sell at the rental car counter, and again covers any damage to the rental car. 

Credit cards can offer two types of coverage: primary and secondary. Primary means the credit card insurance policy pays out before your own auto insurance gets involved. Secondary means the credit card insurance policy pays out after your own auto insurance gets involved. Secondary insurance is also used to pay the deductible on your auto insurance policy, for example. 

Be careful if more than one person is going to drive the car. The person listed as the primary driver on the rental agreement assumes liability for damage to the car or accidents the car gets in, even if the primary driver is not, in fact, driving the car at the time of the damage. Basically, if you rent a car and let your friend drive it, and your friend does not have insurance, you will personally be on the hook for any damage he or she causes. Your insurance policy will likely not cover the damage. 

You can avoid this by making sure additional drivers are also listed on the rental agreement and have their own insurance coverage. Credit card policies do often cover a second or third authorized driver, so your credit card rental car insurance protections may apply if you list the other drivers as authorized drivers on the rental agreement.

While you may hesitate to incur the additional fees involved with adding another authorized driver to the rental agreement, potential fees can likely be minimized through smart shopping. Any fees incurred are worth it to avoid the risk of being held personally liable in the event of a collision. 

Many states, including California, prohibit car rental companies from charging additional authorized driver fees when adding the spouse or domestic partner of the primary driver to the rental agreement as an authorized driver. Similarly, many car rental companies do not charge additional driver fees for spouses or domestic partners regardless of state. Other car rental companies will waive additional authorized driver fees for members of their loyalty programs, which are free to join.

This summer may also be a good time to reconsider uninsured or underinsured motorist coverage to ensure you have sufficient coverage for your injuries in the event you are in a collision and the driver at fault is uninsured or underinsured.

Christopher B. Dolan is the owner of the Dolan Law Firm, PC. Casey Hultin is an associate attorney based in our San Francisco office. We serve clients throughout the San Francisco Bay Area and California from our offices in San Francisco, Oakland, and Los Angeles. Email questions and topics for future articles to:

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