There are three types of rental car insurance: collision damage waiver, liability insurance supplement, and personal effects coverage. Let’s look at them one by one.
Collision Damage Waiver (CDW)
CDW covers damage to your rental car.
If you have a personal auto policy and pay for collision and comprehensive coverages, then you can also confidently decline the CDW coverage.
If you don’t have a personal auto policy but you have a credit card with car rental insurance as a benefit: It’s pretty likely your credit card provides CDW. Double check to make sure and also check the coverage limit. All ok? You can use your card and decline CDW coverage.
If neither of these applies to you, then you should definitely opt for CDW insurance. The alternative is a bill that could be tens of thousands of dollars if you get in an accident.
Liability Insurance Supplement (LIS)
LIS covers damages or injuries to other people you cause in an accident.
Deciding on LIS can be a little trickier. Some states do require rental car companies to include a minimum amount of liability insurance with a rental, but many more do not. And that minimum amount may be as little as $10,000. Sounds like a lot until you consider that if you cause an accident, you are responsible for the damage to the other person’s car, their medical bills for any injuries, passengers’ medical bills, any of their belongings damaged in the crash, and even the hideous planter your car finally stopped against at the end of some angry person’s driveway. Yeah, $10,000 is woefully inadequate. We recommend at least $100,000 of liability coverage, or more if you have a family or assets to protect.
So, long paragraph about liability aside, what should you do?
If you have a personal auto insurance policy, you can confidently decline the LIS offer.
If you don’t have a personal auto insurance policy, check whether your credit card company provides this benefit. Most don’t, though, so be prepared for a no. In that case, we strongly recommend that you purchase the LIS product.
Of course, you may want to purchase the LIS product for other reasons – you don’t want to report a claim on your own auto insurance policy or you want the higher limits offered by the rental car company LIS. This last decision comes down to your risk tolerance and financial picture.
Personal Effects Coverage (PEC)
PEC covers your possessions while they're in the rental car.
PEC is cheap, but we don’t think it’s worth the cost, and you can feel free to decline it. Any theft covered by the PEC may be covered through a renters or homeowners insurance policy anyway, but that’s the topic for an entirely different post.
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