TL;DR: You need liability insurance with a high limit. Your credit card won’t get you that. Try to get your liability insurance from home, and failing that buy it at the rental desk. Your credit card might help you if you wreck the rental car, but read the fine print if you are relying on your credit card for that.

You Need Liability Insurance (from somewhere)

You need to secure liability insurance of some sort. If you are involved in an accident where there are personal injuries, your liability can easily exceed your net worth. In other words, an accident can bankrupt you. Exactly how much you might be personally liable for will generally depend on the following:

• the particulars of the accident
• the laws in the place where the accident occurred
• the liability insurance you carry

By definition, you can’t predict an accident. Getting a good handle on the laws regarding liability in motor-vehicle accidents in every place you travel is unrealistic. So, the only way you can mitigate your risk is by controlling the liability insurance you carry.

What should my liability insurance limit be?

Insurance policies often have a maximum liability that they will shelter you from. $1 million seems to be common in North America. What does the limit mean? Suppose you are in an accident where you are ultimately found liable for $3 million and you have a policy with a $1 million limit. Your insurance will pay $1 million to the plaintiff and you will owe the other $2 million.

So, how do you work out how much coverage you need?

Warning: Unpleasant stuff coming up. If you don’t like thinking about accidents, horrible situations, and worst-case scenarios, skip to the next section. The answer is to get the highest liability coverage limit you can get. Everyone else, read on.

Here’s how I work out how much liability insurance I carry. Based on some cursory research I once did, it is my understanding that many courts use, in part, lifetime lost wages and cost-of-care to calculate damages. So, the worst-case accident is probably maiming a vehicle of young professionals. Let’s make some assumptions:

• there are 5 people in the car
• all are professionals earning $70,000 per year
• all are 23 years old
• all are expected to live until 80 years old
• all are injured so badly that they can’t ever work again
• all require care costing $30,000 per year for the rest of their lives

The math goes like this: $100,000 per person per year x 5 people x 67 years = $33.5 million. You won’t be able to buy a policy that gives you that much coverage (the highest I’ve found is $10 million), so just get the highest coverage you can obtain.

Some of you might be thinking “I don’t need liability insurance because I don’t have any net worth to lose if I am liable.” That may be true. You may be broke and you may be able to maim a car full of people without you or your non-existent insurance paying them a cent. But, by knowingly driving around uninsured you are effectively saying “I am putting other humans at risk of life and limb and have declined to provide them with any possibility of compensation if I hurt them just so I can save a few bucks on insurance, and I think that’s OK.” It’s your choice. I know where my moral compass points.

Your credit card (most likely) won’t provide you with liability insurance.

I have only seen one credit card that offers liability coverage of any kind for rental cars — there might be others out there, but no card I have been eligible for provides liability coverage. (If you do find one others, please link to the policy wording document in the comments.)

Credit card policies typically provide coverage for loss and damage to the vehicle but not liability coverage.

You can get liability insurance from the rental car company, but you won’t really know what you’re buying.

Every car rental company I have rented from offers some sort of “liability insurance” at the point where you sign the rental agreement. There are a few problems with buying such insurance:

• the coverage limit is usually $1 million or less
• there are usually all sorts of exclusions in the policy wording
• sometimes the rental desk can not even provide you with a policy wording document
• assuming you can get a policy wording document from the desk, it would generally take hours of reading to understand what you are actually covered for
• it is almost impossible to obtain a policy wording document beforehand, and, even if you can get a rental company to provide you with one, there’s no guarantee that the one you agree to when you pick up your car will be the same

Despite all of these problems, buying coverage at the rental desk is almost certainly better than not having any coverage. Furthermore, there are many circumstances where it is your only practical means of obtaining liability coverage.

Get liability coverage for your rental car from an insurer in your home country/state/province.

It is common that you can obtain liability insurance for rental vehicles from an insurer in your home country/state/province. The advantages of getting insurance from home over buying it at the rental desk are as follows:

• usually cost less
• usually higher coverage limits are available
• you can set the policy up while you are at home so you don’t waste precious vacation time on insurance
• you can learn the details of a single policy and be confident about your coverage regardless of the rental car company you rent from
• it is realistic to understand the coverage you are buying before you need it

In BC, I can obtain travel rental vehicle coverage in three ways:

• “Rental Vehicle Coverage” that is part of the insurance policy for a vehicle I own
• “Unowned Vehicle Coverage” that is part of the insurance policy for a vehicle I own
• “Rental Vehicle Coverage” that is purchased on a per-day basis independent of any vehicle

I suspect that you can get similar insurance in other jurisdictions. I’ve use each of these three types in the past. When I am confident that I have coverage from home that applies when and where I am renting a car during my travels, I decline the liability coverage offered by the rental company.

Read the fine print!!

I have three things I keep in mind when I buy insurance:

1. The only thing that matters is what is written in the policy wording document.
2. The only thing that matters is what is written in the policy wording document.
3. The only thing that matters is what is written in the policy wording document.

I read all of my insurance policies cover-to-cover. I have never bought an insurance policy where the person selling me the policy did not verbally misrepresent the coverage I was obtaining. Here are two highlights from buying rental vehicle coverage:

• salesperson claimed that loss and damage coverage was actually liability coverage when there was, in fact, no liability coverage at all
• salesperson claimed the policy provided liability coverage for rental vehicles on vacations up to 45 days when it actually excluded vehicles driven “regularly or frequently”

My point here is this: Don’t take the word of the salesperson; read the fine print yourself. Insurance policies are, in general, notoriously nuanced — and generally not in your favor. Are you on an extended vacation? There’s probably an exclusion for that. Are you under 25? There’s probably an exclusion for that. Did you rent from Sally’s Pastel Vee-dub Rentals instead of one of the major rental agencies? Are you driving across a national border? Are you driving outside of your home country or continent? There’s probably an exclusion for all of those. Does your drivers license contain characters other than those in the Latin alphabet? There might be an exclusion for that. My point here is this: Whether the policy you have actually provides you real coverage when driving a rental car while traveling very much depends on the fine print of the policy. The only way to figure it out is to read the policy wording for yourself — have fun!

Jurisdictions with Compulsory Liability Insurance

There are jurisdictions where it is practically impossible to rent a car without adequate liability coverage. There are probably a few places like this all over the world. The only one I am familiar with New South Wales, Australia’s CTP Insurance. It took me four hours of research to be confident that I’d actually be covered while driving in NSW. Aussies drive on the left. Canadians on the right. So you can see how it actually mattered at the time. Along the way I also learned that there’s no practical coverage limit (which is good), but that coverage ends when you leave a certain class of main roads (which is bad). Anyway, I didn’t crash.

I suspect the EU has similar compulsory insurance, but I don’t know for sure. I bet there are other places in the world as well.

Your credit card probably covers vehicle loss and damage, but read the fine print if you are relying on it.

The cost of repairing damage to a rental car is rather a minor concern when compared with the millions of dollars at stake in liability coverage. This is because any loss and damage coverage you get will generally be limited to the value of the vehicle. Depending on your financial situation, that might matter a lot or a little. Here’s how I recommend evaluating your vehicle loss and damage coverage needs:

Suppose you destroy the vehicle you are renting, can you easily 
afford to pay to replace it?

   If so, then just accept that you might have to buy the 
   rental company a new car if you have a bad day.

   If not, then does your credit card provide coverage?

      If so, read the fine print in the credit card policy 
      to make sure that it really provides the coverage you need.

      If not, does your policy for a vehicle you own provide coverage?

         If so, read the fine print on your vehicle's policy to 
         make sure that it really provides the coverage you need.

         If not, buy loss/damage coverage at the rental desk.

Just like liability policies, vehicle loss and damage policy wording is generally nuanced in ways that favor the insurer and are rife with creative exclusions. If you are relying on vehicle loss and damage insurance to keep you out of a financial bind if you wreck your rental car, make sure you read the fine print carefully. If you read the fine print on your credit card or vehicle’s policy and you really are sure you have the coverage you need from there, then you probably don’t need to buy the loss/damage coverage (aka loss/damage waiver) at the rental desk.