Although frequently not explicitly stated, US car rental companies are required by respective state law to provide minimum liability coverage, except in California and Arizona, where the driver is solely responsible. This covers costs to a third party in the event of an accident. In most states, it is illegal to drive a car without liability coverage. The rental car companies maintain liability insurance on their vehicles; however, some companies will charge for this, should you not provide your own insurance. As an example, in Maryland, the minimal level of liability coverage is $20,000 for bodily injury and $15,000 for property damage.
It is typical, when renting a car, to be offered various forms of supplemental insurance and/or damage waivers as an optional extra at additional cost. There are several types of coverage:
- Loss Damage Waiver (LDW) – covers the cost of damage to the rental vehicle, up to the full value of the vehicle, in the event of an accident. Typically LDW covers 100% of costs without a deductible additional fees. Note that LDW/CDW coverage is not insurance and does not offer the same coverage product as a damage insurance policy.
- Collision Damage Waiver (CDW) – Generally covers the costs of damage from a moving accident. As the name suggests, the non-collision based damage is often not covered. In many cases, in the event of an accident, a fee or deductible applies.
- Supplemental Liability Insurance (SLI) – a product often sold in the U.S. which provides coverage in the event of an accident causing bodily injury or property damage to someone other than the renter and passengers.
- Personal Accident Insurance (PAI) – covers medical costs and accidental death for the renter and passengers in the event of an accident during the rental.
- Personal Effects Coverage (PEC) – insures against risk of loss or damage to the personal belongings of the renter (and sometimes the members of the renter’s family while traveling with the renter) during the period of the rental.
- Excess Insurance – Collision damage waiver, Theft and Third Party Liability coverage are often included in car rental prices in Europe, Africa, and Australasia. There is almost always an excess on these (also referred to as Super CDW, Non-Waiver, or Deductible), which involves an amount of money customers must pay in the event of damage, to discourage drivers from making small claims. A higher excess usually results in a lower upfront insurance cost for customers, but if damage occurs costing less than the excess to repair, then there is little incentive for customers to claim, benefiting the insurer. Excess insurance (also known as excess reduction, or damage liability waiver) is a secondary insurance which covers the cost of that excess in the event of a claim. Car-rental companies in Europe, South America, and Australasia will generally offer this cover as an opt-in secondary insurance, though third-party insurance companies also sell excess coverage for hire cars, which may offer greater protection than standard coverage.
In the U.S., the sale of these supplemental insurance/waiver products may be regulated by each state’s insurance department, and a special limited license may be required by the rental company in order to sell them. The specific coverage offered can differ substantially, depending on the state or country in which the car is rented.