Understanding Car Rental Insurance
& Your Excess Liability
A key aspect to hiring a car is understanding car rental insurance and your excess liability, and knowing exactly what you're signing for and initialing on all those marks in the rental car agreement.
In Australia, there are 3 types of insurance that are included in the base car rental cost:
- Third Party Liability - this is covered 100%.
- CDW (Collision Damage Waiver) - this is covered 100% except for the agreed Excess that the hirer must pay in the event of an accident.
- Theft - this is covered 100% except for the agreed Excess that the hirer must pay in the event of the theft of the vehicle.
So what is the 'Excess' referred to in relation to car rental insurance?
The Excess is the first part of any car rental insurance claim (due to damage or theft) that you, the hirer, are liable to pay to the hire car company. The hire car company will then lodge its own insurance claim to recover the balance of the cost from their own insurer.
The amount of the Excess will vary across car rental firms, but is usually between $3,000 - $5,000.
So what does this mean in practical terms?
Let's assume that your rental agreement states that the Excess is $3,000 in the event of a claim.
Example 1: The car is stolen while in your care, and the cost to the car rental firm is $20,000.
You won't have to pay the full $20,000... but you will have to pay the amount of the Excess, which is $3,000. The car rental firm will make a claim to its insurer to recover the balance of $17,000.
Example 2: You have an accident, and the total damage to the car is $2,500.
Because the cost ($2,500) is within the amount of the Excess ($3,000), you must pay all of the costs to the car hire company. The car hire company will not need to make any additional insurance claims, because your payment of $2,500 covers their costs.
However, there is a way to avoid having to pay any Excess to the car hire company in the event of an accident or theft.
You can choose to pay an extra amount of insurance ('Excess insurance') to the car hire company at the time of collecting your car, to reduce your Excess liability to zero or just a few hundred dollars.
In Australia, the major car rental firms will charge you around $24 per day for Excess insurance to reduce your Excess liability.
This can add an extra 30-50% to the cost of the car hire... which is rather unpleasant.
But it's a lot more unpleasant to receive a bill of $3,000 Excess in the event of damage or theft!
And this is why a lot of people (myself included) choose to opt-in and pay the extra $24 per day over the car hire period. It brings peace of mind.
Ultimately it is your choice depending on the level of risk you're comfortable with... Excess insurance is voluntary, so you don't have to buy it.
If you don't, however, just be willing to accept the risk of getting a bill for whatever the amount of the Excess in your car rental agreement is, should an incident occur.
The good news is, there is now a cheaper way to reduce your excess liability and save a bundle of money on car rental excess insurance.
Check out this car rental excess insurance product that won the award for 'World's Leading Innovative Ecommerce Travel Product' from The World Travel Awards several years ago.
It will significantly reduce your car rental costs while continuing to deliver peace of mind!
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