Visitors to California renting or hiring a car are faced with a dizzying array of insurance choices: There's LDW, CDW, PDW, LLDW, PAI, PEC, LIS, etc. To make things more confusing, California has different laws regarding insurance and car rentals than other states or countries. Plus many car insurance companies push renters to purchase insurance and there have been numerous complaints of visitors purchasing insurance they didn't need or want.

So, what insurance is needed when renting a car in. California? It is hard to provide specific advice as people are different with different risk profiles and situations in life. A person may not be worried about losing $500 so is willing to take the risk; while another may want to purchse insurance to avoid that same risk. To make a good decision about the what rental car insurance to get, it helps to first get accurate answers to the following questions:

  • What bad things can happen to drivers who rent/hire cars in California?
  • What insurance is legally required in California for all drivers?
  • What is automatically "covered" for drivers who rent cars in California?
  • What are the standard exclusions to the "coverage" sold by car rental companies? 

Answering the first question addresses the risk and WHY insurance is needed. Answering the second will outline the abosolute minimum insurance needed. Answering the third question will help visitors make the benefit / cost decision about how much insurance to get. Answering the last question will help avoid any surprises.

What bad things can happen? 

There are several bad things that can happen to car renters in California:

  • Third Party Liability. Damaging someone else (bodily injury or property damage) and getting sued by the injured person. The potential loss depends of course on the amount of damage caused, culpability of the driver (racing cars while intoxicated will not help), and attorney and court related fees. This liability can be very large and drivers who have caused a lot of pain and suffering have been successfully sued for many thousands to millions of dollars.
  • Theft if renter is careless. Having the car stolen when the renter has NOT exercised "ordinary care" (e.g. leaving the keys in the car and doors unlocked). The charge depends again on the fair market value of the car and any administration charges (including loss of use). Charges could be as as high as $40,000 when renting a mid-sized car. 
  • Collision/Loss for whatever reason. Damaging the rental car (regardless of who is at fault) and getting charged by the rental company for repairs and loss of use. The charge depends on the damage to the car (up to fair market value), how long it takes to repair the damage and any administration charges (including loss of use). However, the charges are capped by California Civil Code Section 1936 if the car is vandalized but not stolen: The most the renter is responsible for is $500.
  • Personal Accident Medical Costs. Getting personally hurt from an auto accident and having to pay medical bills. The risk depends on whether someone else is at fault and has money/insurance to reimburse the renter; and also the extent of the injuries. A standard emergency room visit with X-rays can easily cost $2,000 while emergency surgery may cost over $50,000. 
  • Personal Effects Loss. Having personal items (e.g. luggage) stolen or damanged while in the rental car. 

Besides the monetary loss, there is the hassle of dealing with rental car companies, lawyers and paperwork needed to resolve these issues. Hopefully, nothing bad will ever happen but it is important to understand what can go wrong first. Then decide: Do I care about these bad things enough to pay the extra $$ to insure against it?

California Law Requiring Insurance 

According to California DMV, The following minimum liability insurance is required for private passenger vehicles: 

  • $15,000 for injury/death to one person. (Also known as bodily injury liability)
  • $30,000 for injury/death to more than one person.
  • $5,000 for damage to property. (Also known as product damage liability)

Third party liability insurance compensates a person other than the driver for personal injury or property damage. Comprehensive or collision insurance does not meet vehicle financial responsibility requirements. It covers the situation where you hit and break someone's leg (bodily injury) or run over someone's fence (property damage).

The only required insurance coverage when renting cars in California is third party liability. Of course, many people choose to get insurance over and above what is legally required. Drivers must also carry proof of liability insurance (your own insurance card or the car rental contract if liability coveerage was purchased) as that is required by law.

What is automatically covered? 

For California, rental car companies do not automatically provide any liability protection to the renter as part of the standard rental agreement. However, some (e.g. Hertz) may provide the minimum primary liability protection to international customers (driver's license indicates an address outside the USA) renting in California. 

This means drivers need to provide their own liability insurance when renting in California. In general, US residents should already be covered by their regular auto insurance but drivers need to confirm that they have the minimum level of liability insurance from their own insurance company. If not, renters will need to purchase purchase liability insurance (LIS or SLI) through the car rental company, or a non-owner liability policy through an agent or your favorite insurer like GeicoProgressive, etc). 

According to California Civil Code Section 1936, the renter is covered for theft (and vandalism damage as a result of theft) as long as the renter has exercised ordinary care. The renter is also covered for vandalism with a $500 deductible in cases other than theft. So purchasing additional coverage for theft and vandalism (assuming the renter plans to exercise ordinary care) is typically not needed.

The other risks (collision damage to the rental, theft when renter is careless, personal accident medical or having personal effects damaged/stolen) are not automatically covered by rental car companies. So while not required by law, the renter has the option to purchase coverage to protect against the risk. In many cases, the renter already has coverage through somewhere else (e.g. their own auto insurance or personal liability policy, their health or life insurance, or their credit card company).

The rates for additional coverages are typically not included in price quotes from direct booking sites in the US whereas International visitors who book rental cars through overseas booking services (e.g. http://www.hertz.com.auhttp://www.avis.co.uk/  or rentalcars.com) will typically find 3rd part/supplementary liability insurance and Collision/Loss Damage Waiver bundled into the daily rate. So, always check terms and conditions for quotes when booking or comparing rates.  

Exclusions and limits to coverage 

There are some important exclusions to note in some of the coverages sold by car rental companies.

Liability insurance sold by rental car companies will typically cover liability up to $1 million. This means if a renter is successfully sued for $5 million, the insurance company will pay the $1 million and the renter is personally responsible for the rest (less any other insurance the renter has).

Personal Accident Insurance (which covers the renter's medical bills) typically has an upper limit that is low -- only $2,500 for Hertz and Avis. Note that the renter is typically covered only for accidents while in the car and not while falling on a hike or getting food poisoning in a restaurant. Other exclusions may also apply. Visitors to the United States who need temporary health insurance that cover them inside or outside a car for more than $2,500 can obtain them from different insurance agencies that specialize in travel insurance for overseas visitors (e.g. moneysupermarket.com and many others). 

It is also important to note exclusions to the Loss Diamage Waivers (LDW/CDW) sold by car rental companies. LDW is not insurance; it is a waiver of the right for car rental companies to sue for damages. Typical exclusions which invalidates LDW (in California) include (but may not be restricted to): 

  • Intentional damage to the rental car
  • Towing or pushing anything
  • Driving while intoxicated or under the influence of drugs
  • Driving in a reckless, wonton or dangerous manner'
  • Using the car for commercial hire, or while committing a felony
  • Driving on unpaved roads (if the damage or loss is a direct result of the road/driving conditions)
  • Driving outside the US or Canada
  • Use of car by an unauthorized driver (other than the renter or spouse of legal age with valid drivers license)

This means that any damage to the car under the circumstances above will not be covered by LDW. Each rental car company has different rental agreements so read your rental car agreement for the exact exclusions. If you are covered by your own insurance, understand the exclusions of your own insurance when deciding whether there is duplicate coverage.  

Bottom Line: Which Car Rental Coverage is required? 

Third party liability is ALWAYS required so be sure you have that. For others, decide whether you want to pay the additional charges BEFORE you walk up to the rental counter. For many visitors from overseas, collision damage waivers provide peace of mind and California regulates the price so there should be no difference in the cost of coverage among car rental companies.

Decide before hand so you won't be confused and end up paying for coverage you don't need or want. For those who HATE being "sold" additional insurance, consider signing up for frequent renter programs where insurance coverage decisions are made before hand and all you do is pick up the car and skip any "hard sell tactics".

Here's a summary matching the risk with the coverages offered:

RiskRental Car OfferingRequired? 
Third party liability- Liability Insurance Supplement (LIS)
- Supplemental Liability Insurance (SLI)
• Required by law. Purchase if renter does not already have local liability insurance coverage. Often budled into rate when booked using overseas services
 For US residents who rent cars frequently, non-owner liability policies may be more cost effective than purchasing from the rental car company for each rental. 
Collision damage of rental car

- Loss Damage Waiver (LDW)
- Collision Damage Waiver (CDW)
- Limited Loss Damage Waiver (LLDW) 

• Purely voluntary based on risk preference and whether renter has existing coverage. Often bundled into rate if booked using overseas services
• Recommended if renter does not want the hassle of legal paperwork or excess damages and wants peace of mind for $9/day (accident reports must still be filled out on time). 

• Useless if renter plans on engaging in reckless behavior, or committing a felony, or driving in Mexico, or off-road at high speed, etc.

Theft of rental car if renter is careless- LDW et al• Purely voluntary based on risk preference and whether renter has existing converage. 
Recommended if renter plans to leave keys in an unlocked car or is careless.
Medical Bills if renter is hurt- Personal Accident Insurance (PAI)

• Purely voluntary based on risk preference of renter.
• Recommended only if renter does not already have health insurance and is worried about smaller medical bills under $2,500 from auto accidents. If worried about high medical bills while in California, check with your state department for recommendations or your insurance agent for travel insurance or visitor health insurance with higher medical limits and coverage outside the car.

Theft or damage of renter's property- Personal Effects Coverage PEC

• Purely voluntary based on risk preference of renter.
• Recommendation is to leave gemstones at home, keep valuables in the hotel safe or locked in the trunk, and to park in safe locations. Or purchase generic travel insurance.

 

Additional References:

Note: This is meant to be general background information for California rentals (they may not apply outside California) and not meant to be specific legal advice. Check with your insurance agent and your legal advisor with any questions regarding litigation risk or insurance coverage for your exact situation.