Do you need car hire insurance?
If you’ve ever rented a car, you’ll know the moment. You’re at the counter, keen to get on the road, when the staff start throwing around terms like collision damage waiver, excess waivers, and roadside cover.
You nod, sign, and hope you’re not getting stung. Car hire insurance, especially when car hire companies throw a curly one at you when you’re eager to start your holiday, is a classic source of confusion. The wrong choice could leave you out of pocket by thousands if something goes wrong.
So what exactly is car hire insurance, and do you really need it? Let’s break it down.
What does rental car insurance typically cover?
At its core, rental insurance usually covers three things:
- Collision damage waiver (CDW) or loss damage waiver (LDW): Reduces your financial liability if the hire car is damaged or stolen. Some companies differentiate the two, with the latter covering vehicle theft (see next point).
- Theft protection: Covers loss due to theft, though not personal belongings.
- Third-party liability: Known as CTP, this is a legal requirement for all cars including rental cars in Australia. It covers damage you cause to other people’s property or injuries to others.
- Standard liability: Often there is already a standard damage cover for the car. However, this standard cover usually comes with a lot of exclusions (such as damage to windscreens or headlights) so make sure you understand what won’t be covered.
Some policies also include personal accident insurance, but this is often unnecessary depending on any travel insurance you may already have, or your Medicare coverage if you’re an Australian resident driving locally.
What’s not covered? Often:
- Windscreen or tyre damage
- Damage to the roof or undercarriage
- Driving on unsealed roads
- Water or animal damage
Some other types of insurance can cover these gaps, such as windshield, tyres, undercarriage, roof coverage (WTU).
Understanding rental car excess
You’ll also see options such as excess reduction or full cover, which either bring your out-of-pocket costs down or waive them entirely.
The excess is the amount you’d be liable to pay in case of damage or theft. These amounts can be surprisingly high, typically ranging from $4000 to $8000, depending on the vehicle and provider.
Add-ons to reduce the excess can cost upwards of $30 a day, so weigh that against the excess itself.
You can choose to:
- Accept the default excess and risk paying it
- Pay a daily fee to reduce or remove it
- Use third-party excess cover to offset it
Watch for sneaky extras like admin fees, towing charges, or single-vehicle accident fees, which might not be clearly spelled out.
Do you really need rental car insurance?
The short answer: it depends.
Going without cover is a roll of the dice. While the upfront cost of insurance might seem steep, the potential outlay without it – especially for things like excess liability or damage outside standard cover – can blow out quickly.
If you’re planning a road trip through remote areas, driving unfamiliar terrain, or simply want peace of mind, then yes, it’s a good idea. That time a wild horse bickered its way onto our front fender in Fiji comes to mind. Rental car insurance helps shield you from financial fallout if the unexpected happens – think kangaroo strikes, gravel chips, or a carpark scrape.
That said, you might already be covered. Some travel insurance policies include rental car excess cover, but you’ll need to check the dollar limit and conditions. Many premium credit cards also offer this perk, though often only if the booking is made on that card. And a handful of comprehensive car insurance policies in Australia extend to hire vehicles, though this varies and usually has strings attached.
Types of car hire insurance
- Rental company insurance: Convenient and immediate, but usually the most expensive.
- Standalone travel insurance: Often cheaper and may include extras like luggage cover or trip cancellation.
- Credit card coverage: Handy if it applies, but check exclusions, vehicle class limits, and activation requirements.
Relying on third-party cover can save money, but it can also slow down the claims process. Instead of the rental agency handling repairs directly, you might have to pay up front and claim back later.
— Bridie Schmidt
What to look for when choosing car hire insurance
When comparing different types of car hire insurance, consider:
- Excess amount and liability: Know what the standard excess is for your vehicle, and what happens to that excess under any additional cover. Excesses may be higher for luxury cars, 4WDs or for younger drivers. Also check if certain situations carry a higher excess – for example, some contracts impose a higher excess or extra fee for single-vehicle accidents, hail damage, wildlife collisions, or for a driver under 25.
- Coverage inclusions and exclusions: Don’t assume “insurance” means everything is covered. Check exactly which car parts and incidents are not covered by the policy. Many rental agreements exclude common damage scenarios from their standard cover, such as damage to windscreens, tyres, wheels, roof, or underbody, as well as interior damage or lost keys. Similarly, third-party excess insurance will often only reimburse charges the rental company would cover under its agreement; if the rental terms say they don’t cover windscreens at all, your extra insurance may not either.
- Breach scenarios: Almost all rental car insurance (whether through the rental company or an external provider) becomes void if you breach the rental agreement – driving drunk or speeding, driving on unsealed (dirt) roads or in prohibited areas, water crossings, using the wrong fuel, or letting an unauthorised person drive the car. Some rentals even prohibit driving at night in certain outback regions or driving above the snow line in alpine areas.
- Additional fees and charges: Ask the rental company what additional fees might apply in case of an accident or damage. Besides the excess, there could be administrative fees, processing fees, towing charges, and loss-of-use charges (for the income the company loses while the car is being repaired) that you’re liable for. A good insurance policy (or the rental’s own waiver) may cover some of these, but not always. If you see any vague “miscellaneous fees” in the agreement, ask for clarification rather than fight the charges later.
- Excess charges: Also be aware what will happen if you need to report damage to the vehicle. For example, the company could immediately charge the excess to your card after an incident, and if actual repair costs end up lower, you’ll have to trust them to refund the difference later. They will also likely place a large security hold on your credit card (often equal to the full excess) when you pick up the car, which can tie up your funds. Make sure your card can accommodate this hold, or you may feel pressured to buy their coverage instead.
- Not-at-fault accidents: If another driver hits your rental car and is clearly at fault, you’ll still initially have to pay the excess to the rental company – they don’t waive it on the spot (unless you bought their zero-excess cover). The rental company should pursue the at-fault party (or their insurer) to recover the damage costs. If the rental company successfully recovers the full amount, you are entitled to a refund of the excess you paid. Keep in contact with the rental company’s claims department if this happens, providing any evidence of the other party’s fault. Unfortunately, refunds can take a long time, but know that under law, you are entitled to get your excess back once the other party pays.
Common pitfalls and gotchas
Some traps catch out even seasoned travellers:
- Damage scams: Always take time-stamped photos or video before and after you drive.
- Fuel policies: Some charge you for a full tank even if you return it nearly full.
- Additional driver fees: Adding your partner or friend can attract a daily fee.
- Age-related surcharges: Drivers under 25 (and sometimes over 75) may be charged extra.
- Exclusion traps: Off-road driving, unauthorised drivers, and hitting animals are often not covered.
Your rights under Australian Consumer Law
Remember that you are protected by Australian Consumer Law from unfair or misleading practices. Insurance companies should not mislead you – for instance, by selling a product called “Total Protection” that still has exclusions could be deemed misleading. They also can’t charge you for damage that didn’t occur or overcharge without evidence. If the car is damaged, insist on an itemised repair invoice before agreeing to any charges.
If you need to dispute repair costs, you should be given a reasonable opportunity to review and dispute any damage charges before your card is debited. The Australian Competition and Consumer Commission (ACCC) advises that before a rental firm keeps your security deposit for damages, they should prove the cost with receipts.
According to Choice, some agencies have in the past charged the maximum excess to customers’ cards without a proper quote or added unsubstantiated fees, hoping the customer won’t challenge it.
If you suspect a charge is unfair, dispute it promptly – first with the rental company (escalating to management), and if needed, through your credit card company (to initiate a chargeback) or finally, with your local consumer affairs agency. Don’t be afraid to demand transparency – it’s your money on the line.
Verdict: is it worth it?
There’s no one-size-fits-all answer when it comes to car hire insurance. If you want to avoid surprises, the convenience of going with the rental company’s cover might be worth the cost. But savvy travellers often save by using standalone travel insurance or credit card benefits.
Ultimately, it comes down to your risk appetite and how much time you’re willing to spend reading fine print or handling claims after the fact. Decide what’s right for you, so you can kick your holiday off with a grin!
Quick tips for safer, smarter car hire
- Confirm exactly what’s covered in the base rate
- Compare excess limits and the cost to reduce them
- Ask about optional extras like windscreen cover or roadside assistance
- Clarify any age or licence restrictions
- Take videos and photos of any damage on pickup, and keep rental check-out and check-in reports
- Don’t assume you’re covered – confirm with your insurer or card provider
- Keep a copy of your rental agreement handy
- Get written confirmation of any damage assessments and costs
Resources and where to learn more
