Breaking down car hire insurance

Car hire insurance can be confusing and add unnecessary stress to travelling, but understanding your different coverage options can give you peace of mind while potentially saving you thousands of pounds. 

We’ll look at the various hire car insurance types, how they can be combined and how to choose the best option for your needs so that you save money but don’t risk ruining your holiday with a costly accident.

Does car hire include insurance​?

Car hire includes two types of cover: liability insurance and a Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW).

Liability insurance is required by law and covers injury to others and damage to their property. Coverage is typically in the millions of pounds, so it’s unlikely that you would exceed the limit.

Hire cars also come with a basic CDW or LDW. This reduces your financial responsibility for damage to the hire car (with some exceptions), as well as theft. The catch? Basic CDWs come with a high excess (£1,000–£2,000). Excess is the amount you have to pay before the CDW kicks in—unless you purchase some form of excess cover (more on this below).

Basic CDW Exclusions

It’s important to note that basic CDWs do not cover all instances of damage. Glass, mirrors, tyres and undercarriage are usually excluded, as hire companies consider damage to these components to be the result of driver negligence. These exclusions make it extra important to drive carefully when using an unfamiliar hire car. Keep an eye out for potholes and road debris, and take care when reversing.

Read your hire agreement carefully, as some situations will void your cover. For instance, driving off paved roads, such as at the beach or on a dirt road, typically violates contracts. Getting stuck or damaging the car in these places will require you to pay the full cost. Similarly, driving recklessly or under the influence, or having an unauthorised driver operate the vehicle, will break your agreement. If you leave the keys in the car and it is stolen, you will be on the hook for the full cost (plus fees).

CDWs also do not cover your personal belongings, mechanical breakdowns and towing, lost keys or misfuelling. You will need to purchase additional cover for those instances.

What is ‘excess’ in insurance​?

Excess insurance is additional cover you can purchase to reimburse you for the excess on a basic CDW. The most straightforward way to avoid paying excess is to purchase additional cover from the hire company in the form of a Super CDW (SCDW) or Zero-Excess Cover. This option waives or significantly reduces your financial responsibility. It will often also cover basic CDW exclusions like glass, tyres and undercarriage. While convenient, an SCDW can also be expensive (£12–£30 per day).

Third-party excess insurance

Purchasing separate excess cover from a third party is almost always the more cost-effective route. Companies like ReduceMyExcess, Bettersafe, iCarhireinsurance, RentalCover.com, CarHireExcess.co.uk and RAC all offer excess cover for £2–£6 per day.

In addition to the excess, these policies will often cover common CDW exclusions. If you hire cars frequently, an annual policy can save you money.

Third-party excess insurance works by reimbursing you for costs. You’ll still need to pay the excess upfront, then claim it back from the excess insurer. Be sure to keep all documentation.

*Additional drivers must be named on the hire agreement.

Do you need insurance to hire a car​?

Because car hire companies include liability insurance and a basic CDW, you do not need personal auto insurance to hire a car (these policies rarely extend to hire cars anyway). However, you might consider purchasing additional insurance to cover any gaps (in addition to the excess), such as your personal possessions and mechanical breakdowns.

The hire company’s Super CDW may cover commonly excluded damage and administrative fees, but rarely covers personal belongings, lost keys, breakdowns, towing or misfuelling. 

Some excess insurance policies cover these situations (see chart above). If yours doesn’t, you can often add extra cover. 

For personal belongings, you may be able to use certain home insurance policies. If you’re travelling with valuables, confirm your coverage and consider comprehensive travel insurance to bundle standalone insurance policies into one.

Travelling abroad

If you’re travelling abroad and plan to hire a car in your destination country, be aware that hire car insurance practices differ. Be sure to familiarise yourself with the other country’s system to protect yourself.

Car hire insurance in the EU

Car hire insurance on the Continent works similarly to that in the UK, with some differences. In general, third-party liability insurance is included but may be lower than UK standards. Basic CDWs have similar exclusions but carry a higher excess. Spain, in particular, tends to have a high excess (€1,200–€2,420 or higher). Consider purchasing excess insurance before your trip. You may also consider extras like roadside assistance, Supplemental Liability (SLI) and personal effects insurance (PEI).

Car hire insurance in the USA

U.S. hire companies’ CDWs have no excess (usually called a deductible), but they are expensive. Cheaper collision cover is available from third-party insurers. Liability insurance is usually included in your hire, but the minimums vary by state and can be quite low. Consider purchasing SLI. 

You might also want to protect yourself and your passengers in the event of injury with Personal Accident (PAI) or another visitor medical insurance plan, as medical bills in the US can be extremely high without insurance.

The keys to car hire insurance

The best move is almost always to purchase third-party excess insurance to minimize your financial responsibility and to cover gaps in basic CDWs. Compare policies online and consider adding extra cover where needed. If you travel frequently, annual traveler insurance can offer savings and convenience. Finally, if hiring a car in another country, be sure to familiarise yourself with local insurance practices.