Hire-car Insurance

Cars can be a great way to get around when travelling (but aren’t always), and, unless you’re travelling directly from your home, you will probably want to hire a car at your destination if a car is your chosen method of local transport.  

When you hire a car there is always the chance that it will be damaged while you are responsible for it, so understanding car-hire insurance is important.  

Unfortunately there’s a lot of conflicting information out there about insurance on hire cars.  This is my take on it, based on my experience and my research.  When you hire a car be sure to read the hire-car company’s term and condition before you collect it to satisfy yourself that you have the insurance cover that you need.  

As far as I know, based on my own experience, hire cars from recognised car-hire companies are always fully (comprehensively) insured by the car-hire companies themselves.  This insurance should cover:

• damage to the hire car
• theft of the hire car
• injuries to any person not in the hire car (Third party personal  liability insurance)
• damages to any property other than the hire car (Third party property liability insurance).

However, it’s the car-hire company that has insured the car, not you, and you don't get to use their insurance for free.  When you hire a car from them they will sell you a collision-damage waiver, which is a legal agreement that they will not make you pay the cost if the car is damaged, stolen, injures anyone else, or damages anyone else’s property.  With a collision-damage waiver you will be covered for any accident damage you are held responsible for, or any injuries that you cause when driving.

Because customers always want a collision-damage waiver, and many countries legally require it, the car-hire company usually incorporates the cost into the upfront cost of the car hire.  However, in some countries car-hire companies may ask to you pay separately for the collision-damage waiver when you go to collect the car, in addition to the hire charge.  

The catch to the collision-damage waiver is that it has a very a high excess (also known as a deductible). 

 The excess is the amount that you will have to pay as your contribution to the cost of the hire company’s claim on their insurance.  Even though you have paid, directly or indirectly, for the collision-damage waiver, you will still have to pay this excess.  The collision-damage waiver excess is usually at least AU$4000, and can be AU$8000, or more.

The high excess allows the insurance company to avoid the complexity of dealing with many smaller claims, because if the damage claim is less or not much more than the excess amount there is no point for you in making a claim on the insurance – you will just pay directly for the repair yourself.  Most damage that happens will fit this description.

You can pay an extra fee when you hire a car to have the collision-damage waiver excess reduced to a lower amount, or removed altogether.  This extra fee goes under a few different names depending on the car-hire company and the country that you are hiring the car in.  Car-hire companies may call this fee theft/damage excess protection, hire-vehicle excess insurance, reduced damage liability or even collision-damage waiver, or other names.  I’m going to use the name hire-vehicle excess insurance.

(Car-hire companies are inconsistent in the way they use the term ‘collision-damage waiver’.  While I’m sure that the meaning of this term is as I use it here, sometimes car-hire companies use the term ‘collision-damage waiver’ when they are referring to the ‘hire-vehicle excess insurance’.  I don’t believe that this is correct usage, but that’s what you get.)

The hire-vehicle excess insurance that you can buy to remove or reduce the collision-damage waiver excess is always ridiculously expensive – on a cheap car hire it’s common for this fee to cost more that the car hire! 

There are a few ways to buy hire-vehicle excess insurance to reduce your collision-damage waiver excess below the standard AU$4-8000. 

The simplest way is to tick the box for insurance when you’re booking the hire car online.  If you are booking directly on a car-hire company website the company will provide the hire-vehicle excess insurance.  If you are using a car-hire aggregator website the aggregator will provide the hire-vehicle excess insurance, or may pass you through to a third-party insurer.  Getting hire-vehicle excess insurance this way is the simplest, but not the cheapest way.  

Another simple way to buy hire-vehicle excess insurance is to add it when you collect the car at the rental desk.  The rental desk staff will always ask you if you want excess insurance, and you can agree to buy it here if you haven’t already bought it elsewhere.  If you take this option the car-hire company will provide the insurance.  Getting hire-vehicle insurance this way is quite simple, but this is the most expensive way to get it.    

There are plenty of insurance companies that provide hire-vehicle excess insurance completely independently of the car-hire companies.  Generally, you don’t need to give third-party insurer any details of the hire car or the car-hire company that you are hiring from.  The insurance covers any car that you hire (as long as it’s from a recognised car hire company) for the period of time that you nominate.  You may also be able to get an economical hire-vehicle excess insurance policy that covers multiple car hires during an extended trip, although travel insurance usually provides this cover (see below).  

Insurance companies that offer hire-vehicle excess insurance include Hiccup Insurance, Tripcover, and Rental Car Protection, but there are many others. 

Motoring organisations may also offer hire-vehicle excess insurance; certainly Australian motoring organisations offer it.  RACV, which is a Victoria, Australia based motoring organisation, calls it Rental Car Excess Insurance.  RACQ, which is a Queensland, Australia based motoring organisation, calls it Rental Car Excess only Policy.  You will usually need to be a member of the motoring organisation to buy their insurance at the best price.

International travel insurance usually includes hire-vehicle excess insurance.  On my most recent overseas trip I bought travel insurance from RACQ, which is a Queensland, Australia based motoring organisation.  Currently, the RACQ travel insurance travel insurance plan includes hire-vehicle excess insurance (which they call Rental Car Damage and Theft Excess cover) which pays for the collision-damage waiver excess, or repairs, up to either AU$4000 or AU$8000, depending on the level of insurance that you buy.  If you’re a member of a motoring organisation, that’s a good place to start looking for travel insurance that will include hire-vehicle excess insurance; however, most travel insurance includes it.  

If you’re travelling outside of your own country you really should have travel insurance anyway, at least for the medical component as medical bills can be massive.  But it’s almost worthwhile having it just for the hire-vehicle excess insurance if you are going to do a lot of car hire.  I hired a car many times on my most recent overseas trip and the money (and hassle) that I saved by not having to buy hire-vehicle excess insurance each time was more than half my travel insurance premium! 

Credit-card ‘free’ travel insurance 

Some credit cards come with ‘free’ travel insurance for international travel that includes hire-vehicle excess insurance.  If you have a credit card check to see if it includes travel insurance; and, if so, check if the insurance covers hire-vehicle excess.  Remember: different companies may call hire-vehicle excess a different name.  My own credit card travel insurance (in which it’s called it rental vehicle excess) includes AU$2250. AU$2250  won’t fully cover the collision-damage waiver excess, which is usually at least AU$4000, but it does reduce the payable amount to AU$1750, which you may consider to be a reasonable risk.  

If you do want to use credit card travel insurance for your hire-vehicle excess insurance you may need to let your bank know that you are travelling in order to activate the insurance.  You may also need to spend some part of your travel expenses using the credit card to activate it.  You’ll need to investigate these things with your bank.

Hire-vehicle excess insurance is extremely poor value!  

I’ve recently found that the cost of hire-vehicle excess insurance is usually within the range of AU$8 to AU$25 per day, to cover the risk of incurring the collision-damage waiver excess of AU$4000 to AU$8000.  That AU$4000 to AU$8000 is the most the insurance provider is going to have to pay for a claim, and it’s very unlikely that you will need to make a claim.  Even the lowest price of AU$8 to cover just one day’s (low) risk of incurring a claim of AU$4000 is expensive.  The comprehensive insurance for my own car covers me for the entire value of my car, plus AU$20 million of third party liability cover.  This huge risk on the part of my insurance provider costs me about AU$1.70 per day!  

On this basis you may consider that it not worth insuring the collision-damage waiver excess at all.  If you have an accident or the car is stolen you will be up for AU$4000 to AU$8000.  That’s a lot of money, but it’s not an impossible amount of money, and it is unlikely that you will have an accident or that the car is stolen.  If you feel comfortable with that risk, not buying hire-vehicle excess insurance may be the way to go. 

The cost of these different options for buying hire-vehicle excess insurance depends on a lot of variables, and changes regularly, so I can only give a rough idea of their relative cost.  Here are some figures that relate to research that I did recently for an upcoming car hire, which has a collision-damage waiver excess of AU$4000:

car-hire company website:

        Budget Car hire: AU$37.60 per day

car-hire aggregator website:

Economy Car Rentals: AU$14.40 per day (this only covers AU$2309 of the excess, there will still be AU$1691 to pay)

third-party insurers:

Hiccup Insurance: AU$18.60 per day

Rental Car Protection: AU$11 per day

third-party insurer – motoring organisations:

RACQ: AU$8 per day

RAC (Western Australia): AU$8.40 per day

As you can see, the cost of buying hire-vehicle excess insurance varies widely.  The best deals, at least in Australia, come from motoring organisations.  They take a bit more effort to set up, you’ve got to be organised in advance, and you won't get the best price if you're not a member, but if you can do it they certainly save money.  

If you get your hire-vehicle excess insurance from somewhere other than the car-hire company website or rental desk, make sure that you are confident that the provider you use is real and reputable.  It would be all too easy to create a professional looking website, claim that you are associated with a major insurer, and just collect the ‘premiums’ and ignore any claims. 

It’s great to get cheap premium from a third party insurer, but the premium is worth nothing if you can’t make a claim if you damage the hire car!  

When you choose hire-vehicle excess insurance make sure that you have really covered yourself to a level that you are happy with.  Many of the hire-vehicle excess insurance policies don’t completely remove the collision-damage waiver excess – you’ll still have to pay a reduced excess.  You’ll need to balance this reduced amount of excess against the cost of the hire-vehicle excess insurance.

When you are looking at information for a hire-vehicle excess insurance policy it isn’t always apparent that the collision-damage waiver excess is only reduced and is not completely removed.  You need to determine the value of your hire car’s collision-damage waiver excess, and compare it to the amount that the hire-vehicle excess insurance will cover, to determine whether it is covered sufficiently for your satisfaction.   

The remaining excess can be one of those costs that car-hire companies hide.  Here’s an example: if you go to book a car on Economy Car Rentals website they will offer you Theft Damage Excess Protection – their name for hire-vehicle excess insurance.  In the promotional information for this insurance Economy Car Rentals say they will ‘refund any charges’ that you incur, and that ‘you will be reimbursed for any excess’ that you have to pay the car hire company, and that they will give you ‘complete peace of mind’. 

However, when you read the fine print, you find that they only cover the excess up to AU$2309 (€1500).  As the collision-damage waiver excess is usually at least AU$4000 you will still have a residual excess of at least AU$1691 to pay. 

It’s very easy to take the word of a car-hire company when you are booking a hire car, assume that they are telling the truth about their products, and just tick that insurance box believing that you will be fully covered, but this may not be the case.

The purchase cost isn’t the only difference between these different types of insurance providers.  All insurance providers excuse themselves from paying out claims under some circumstances.  Strangely, the more expensive options for hire-vehicle excess insurance are usually the ones that exclude the most things!

No insurance providers will pay for collision-damage waiver excess if you break your contract conditions with the car-hire company.  This includes drunk or drugged driving, gross negligence, or a non-authorised person driving the car.  (The car-hire companies’ full insurance won’t pay out under these circumstances either, so you could be up for the entire cost of the hire car and third-party damage as well if you break these rules.)  

The hire-car companies’ own hire-vehicle excess insurance, and the car-hire aggregator’s own insurance also usually won’t cover you for damage to the wheels, tyres, underbody, car roof, windscreen and windows, and there may be even more that they won’t cover you for.  For example, this is the full list of exclusions for Economy Car Rentals’ own hire-vehicle excess insurance:

• incorrect use of the handbrake 
• mechanical damages (engine, clutch, gearbox etc.)
• driving off road or on unsealed roads, 
• vehicle lights
• mirrors
• lost keys
• lock / door handles
• antenna
• towing charges and any damages caused during towing
• interior of the car
• vehicle rollover
• driving in reverse
• collision with an animal 
• total or partial inundation
• immersion in water 
• exposure to salt water, including while being transported. 
• vandalism
• weather or natural disasters.

This is an impressive list of exclusions, and most of it seems pretty unreasonable.  Reading that, you begin to wonder just what you are insured for, if it’s ever possible to make a claim, and if it’s really worth paying out the premium for hire-vehicle excess insurance when it’s like this.   

Generally, third party insurers’ hire-vehicle excess insurance will cover you for everything including roof, windscreen, undercarriage, tyres and wheels – as well as the rest of the bodywork.  

If you don’t buy your hire-vehicle excess insurance directly from the car-hire company, and the car is damaged while you have it, the company will charge you all or part of the collision-damage waiver excess amount, usually AU$4-8000.  You will have to pay this upfront (actually, they will just take it from your credit or debit card) when you return the car.  If you have bought hire-vehicle excess insurance from another insurance provider, you must then then claim the cost back from them.  

If you do get hire-vehicle excess insurance directly from the car-hire company you will just need to pay them the reduced excess.  Again, they will simply take this from your credit or debit card. 

The claim process for hire-vehicle excess insurance bought directly from the car-hire company is much simpler than the claim process with any other insurance provider.  This is a point in its favour, that you can offset against the usually much higher purchase cost.

When you collect your hire car the car-hire company will collect a security bond (deposit) from you.  The security bond covers any refuelling that is required, extra cleaning that is required, automated fines or tolls that you get, any collision-damage waiver excess that you may have to pay if you damage the car, and the repair cost of any damage that isn’t covered by the insurance.  

If you get hire-vehicle excess insurance from either the car-hire company website or their rental desk you are getting the insurance directly from the company.  Because the car-hire company knows that you are sufficiently insured, and they are unlikely to have to chase you up for money if you damage your hire car, they will take a smaller security bond from you than they will if you are insuring with someone else.  

The security bond will usually be a pre-authorisation on a credit or debit card or, if you don’t have a credit or debit card, an amount of cash.  Cash may not be an option and the car-hire company may insist on a credit or debit card, or even insist on a credit card.  This is because, if you are paying with a credit or debit card, they will have your card details, which guarantees that they will be able to take more from your card if they need to when you return the car.

If you are allowed to pay your security bond with cash the amount of the bond will be much greater that if you are using a credit or debit card, and the car-hire company will probably require you to take out no-excess hire-vehicle excess insurance with them as well.  Again, this is because, if you pay with cash, they won’t have your card details and they won’t be able to take more from your card if they need to when you return the car.

I've written more about security bonds and credit cards in another article, here.

Hire cars are fully insured by their owners, the car-hire companies.  To access this insurance you, as a hirer, get a collision damage waiver  from the car-hire company.  The collision damage waiver doesn’t fully cover your liability – if the car-hire company need to make a claim on their insurance for you they will still charge you part of the cost of the claim: the collision damage waiver excess.  To avoid paying the full collision damage waiver excess you can separately purchase hire-vehicle excess insurance .  Hire-vehicle excess insurance usually still leaves a smaller excess to be paid in the event of a claim. 

Make sure that your car-hire company’s insurance covers you for all your possible liability, including car damage, theft, personal injury, and property damage. 

If you’re hiring a car in Australia, you can get another take on the whole car-hire business from Choice, a leading consumer advocacy group in Australia, here.  They also provide a run-down on which companies offer hire-vehicle excess insurance and how much they charge for it, here.  The list is a little out of date but it’s a good starting point for further research.

I’ve based this commentary on my personal experiences, circumstances, and impressions, and my limited research on dealing with insuring a hire car – it isn’t the result of an exhaustive study about insuring a hire car.  It may not apply to you, or your circumstances.  

I don’t endorse any of the services or businesses mentioned here.  (And I don’t receive anything from them for mentioning them, either.)

Over time, the things that I say here may become out of date, and, while I’ll correct anything I know is wrong, I’m not going to be excessively conscientious about ensuring that it is current.  So, treat this commentary as a great place to start, but do your own research and confirm everything that you read here before deciding to hire a car!

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