When you rent a vehicle you will be surprised by the amount of taxes and fees that you will pay on top of the rental cost. As you are checking out, you will be asked whether or not you want an insurance policy on your rental vehicle. This question may throw you if you are not prepared for it, because the rental agency agents are quite good at making it sound like you need the coverage to save yourself thousands of dollars in the event of a crash. Do you need this coverage, or is it simply an additional cost to put more money in the rental agency's pocket?

What Is Covered

Answering this question begins with understanding what is covered by the policy. This will vary from rental company to rental company, but there are usually some similarities to these insurance policies. There are four basic types of coverage: loss damage waiver, liability insurance, personal accident insurance, and personal effects coverage.

Loss damage waiver covers your liability for damage to the vehicle if it is in a collision. This is not actually an insurance product, because it does not pay for the damage. Instead, it takes the liability for the damage off of you, as the renter, even if you caused the crash. The rental company's insurance will cover the damage to the vehicle. Some exclusions apply to the waiver, such as accidents caused by off-roading, drunk driving, or speeding. This waiver will also usually protect you from being charged for the loss of use that the rental company suffers while making repairs to the vehicle.

Rental cars automatically come with some liability insurance, because the state law will require it. However, the protection is minimal. Because most drivers need more liability coverage than what comes with the vehicle, rental agencies offer liability insurance.

If you or your passengers are injured in a crash while driving the vehicle, your medical care could be covered under personal accident insurance. This is fairly affordable to add to your policy. However, you likely do not need it if you have health insurance.

Personal effects coverage, the final type of coverage, will pay for any theft of the things you are transporting in the rental car. Keep in mind that your homeowner's or renter's insurance policy probably already covers the theft of personal belongings, even while traveling.

Do You Need Insurance When Renting a Car

Before you sign up for the car rental company's insurance policy, make sure you really need it. Some of the insurance products you already own may cover the same things that these insurance products will cover. Before you head out for your trip, call your insurance agent and find out what type of coverage you have when renting a vehicle. If you have collision and comprehensive coverage, you are probably already covered for a rental. However, if you only have liability coverage, you may want to consider purchasing the loss damage waiver when renting a car. When you call your insurance agent, find out if loss of use, towing, and administrative charges are covered if you were to wreck the rental.

Another place to look for existing coverage is with your credit card company. Many credit card companies that offer rewards programs automatically insure the rental cars rented with that card. This coverage is usually only for the rental vehicle itself, not for the people in it or the other vehicles on the road. However, this coverage combined with your existing liability policy and health insurance plan may be all that you need.

If after checking these two sources you do not feel that you have adequate coverage, then consider purchasing the insurance. While a crash is not that likely to occur while you are driving a rental car, it could, and not having enough insurance will end up costing you a pretty penny