Why credit card insurance may not pay for a rental car crash

We spend a lot of time talking about insurance at Surround. We've heard "my credit card covers my rental car" so many times now that we have applied for an official insurance magic wand to correct this statement.

Here's the issue - it's half true. And half truths can lead to bad decisions. So here's the whole truth, so you can make the decision that's right for you.

How to make sure credit card rental insurance is "on"

We're going to assume you're already pretty sure your card includes rental coverage. Let’s start by making sure your credit card coverage is valid:

• Make really sure your credit card has rental car insurance. Most actually don't. Those with hefty annual fees are most likely to, like the Chase Sapphire Reserve. There are more basic cards that offer the coverage too, though, like some USAA cards. It's worth checking.
• Make sure you've opted in for rental car insurance if your card requires it. For example, many of the Amex cards have a rental car insurance program you need to enroll in and pay for.
• Use the credit card with rental car insurance to book and pay for your rental. (This one hurts so bad if you forget...)
• Understand what kinds of rentals your card may not cover. For example, luxury cars, rentals outside the US and Canada, vans, business travel, and long-term rentals (usually defined as more than a few weeks) are often not covered.

Your responsibility after a rental car crash. Or, what you hope your credit card will cover.

If you get in a crash in a rental car, you can be held responsible for two things. Damage to the car itself is probably the one you're most aware of as you maneuver your way out of the rental car parking garage. The other is your liability for injuries to other people or their cars or property.

These two responsibilities need to be considered separately when you're thinking about renting a car, so let's take a moment to look at them.

Physical damage includes all damage to the vehicle you're driving. In the context of a rental car, the absolute maximum damage you could cause to the car is the total value of the car, though fortunately most crashes cause less damage. A separate consideration is whether the rental car company will also bill you for loss of use, which is the rental fee they don't earn while the car is being repaired.

Liability is your financial responsibility if you're at fault in an accident. Before you think "I'd never do something that puts me at fault", keep in mind that "fault" is a legal concept here, not a moral one. For example, in many states if you rear-end someone, even if they slammed on the brakes for no reason at all, you'll likely be considered at fault.

If you think about how much damage you could be liable for in an accident, regardless of whose car you are driving, it could be quite a lot. If the crash totals a car you hit and there are several people inside with severe medical injuries, you're likely looking at tens or hundreds of thousands of dollars. Keep that in mind as we move forward.

So, what coverage does your credit card provide?

Credit card coverage generally covers physical damage

The credit card rental car insurance programs are usually limited to Collision Damage Waiver (CDW). CDW covers damage to the vehicle you're driving, and often the loss of use fees, too.

CDW applies regardless of whether you have your own auto insurance policy or not. For a few cards, like the Chase Sapphire Preferred, the CDW they provide is primary, so in a crash you'll just deal with Chase, and you won't file the claim with your own insurance company.

Most other credit cards with CDW provide secondary coverage. If you have coverage for damage to your own car on your policy (called collision and comprehensive coverage), you file a claim with your auto insurance company and with your credit card company. Your auto insurance company pays the claim, and the CDW reimburses your deductible to you.

If you don't have your own car insurance, perhaps because you don't own a car, or your policy doesn't have comprehensive and collision on it, CDW will pick up the entire claim.

Credit card coverage usually gives you no liability protection in a rental car. None.

Here's what many of the people we talk to miss:

While credit cards typically cover physical damage, almost none provide liability coverage. As we just saw, the total cost you could be liable for in an accident is jaw-dropping.

If you have your own car insurance, you almost certainly have liability insurance. That will cover you in a rental car just as it will in your own car. (Though be aware that many car insurance policies only cover your liability if you're driving in the US or Canada.)

If you don't have your own car insurance, there may be some liability insurance included in the rental, but it's typically the minimum legally required, which may be as little as $10,000. And, as we covered earlier, this can lead to a ruinously expensive problem crash. So, how do you rent a car without insurance?

How to get liability protection for a rental car

So, if you don't have your own car insurance, what should you do? Well, there are two good solutions, depending on how often you rent cars.

1. Buy insurance at the rental car counter. Rental car companies sell a type of insurance called a Liability Insurance Supplement (LIS). This covers your liability during your rental period. It will probably cost you about $20 a day.
2. Buy a non owned auto policy. These are sold by regular insurance companies (like Surround!) and cover you for liability when you drive any car you don't own for personal use - rented, borrowed, or shared. This kind of policy should cost about $50/month. If you rent or drive cars you don't own often, this makes more financial sense.

In conclusion

Always check the specific details of what's covered before you rent a car with your credit card company, and with your auto insurance company, if you have auto insurance. Then you will confidently know if you need to buy insurance at the rental car counter, and what you should decline.

Insurance can work a little differently for car sharing platforms like Zipcar or Turo, and some credit cards may not cover them. Read more in our article about car sharing insurance.

If you'd like to read more about insurance at school, check out our guide to insurance for college students. If you'd like to read more non owned auto generally, check out our guide to everything you need to know about non owner auto insurance.