How does insurance coverage work when renting a car?
Rental car insurance differs from regular car insurance. In most countries, all rental cars must have a basic insurance package that provides three types of coverage in order to be driven on the road. However, the coverage details may vary. Here is what you need to know about rental car insurance: Almost everywhere in the world, rental cars must have a basic insurance package that provides three types of coverage to be allowed on the road, which are: damage coverage (commonly known as Collision Damage Waiver (CDW)), theft coverage (Theft Protection (TP)), and third-party coverage (Third-Party Liability (TPL)).

1. Collision Damage Waiver (CDW)

Basic damage coverage for rental cars, commonly known as a Collision Damage Waiver (CDW), protects you in the event of damage to the car’s body. Like most other types of coverage, nearly every option includes an excess, which is the amount you must pay for repairs if the car body is damaged. The excess amount varies depending on the rental location, the rental car company, and the type of car rented. CDW covers only the car’s body. Therefore, if any other parts, such as windows, wheels, or the car’s interior, are damaged, you will be responsible for the repair costs, including any administrative fees, unless you have purchased additional coverage.

2. Theft Protection (TP)

Imagine a scenario where a thief is breaking an icy car window to get inside. Theft Protection (TP) covers your rental car in the event it is stolen, as well as any repairs needed due to an attempted theft. TP provides coverage if the car is stolen or if someone attempts to steal it. Almost every TP option includes an excess, which is the amount you must pay if the car is stolen or damaged due to an attempted theft. This excess amount varies depending on the rental location, the rental car company, and the type of car rented. Sometimes, you may encounter “Loss Damage Waiver (LDW),” which combines CDW and TP into one option.

3. Third-Party Liability Insurance

Third-Party Liability Insurance (TLP) covers expenses in the event that you cause injury to another person or damage to someone else’s property with your rental car. However, it does not cover the rental car itself. Typically, third-party liability insurance has a maximum payout limit specified in the policy.
This type of policy does not have an excess (deductible).

What type of insurance is included with the car rental?
Imagine a silver Mercedes-Benz toy car wrapped in clear bubble wrap. Almost everywhere in the world, every rental car driven on public roads must have basic coverage for damage, theft, and third-party liability. If you are from Europe or most other parts of the world, damage, theft, and third-party coverage are usually included in your car rental booking price. Both collision damage waiver (CDW) and theft protection (TP) have an excess, which is the first amount you need to pay for repairs or other expenses.
However, rental car insurance works differently for drivers in the United States and Canada. Most North American drivers have credit cards that already include rental car insurance, so they can opt for a basic (or “standard”) package without damage or theft coverage, or choose a package that includes these coverages (the basic or standard package still includes third-party liability insurance). Remember, all coverage types are tied to the rental agreement the driver signs when picking up the car. So, if the driver violates the rental agreement terms, the renter will be responsible for the full cost of repairs or replacement in case of theft.

Other optional insurance for rental cars
You can choose to purchase additional insurance to cover the excess (meaning you will not have to pay any repair costs) and other parts of the rental car. Since it is not mandatory by law, renters have the option to decide whether to purchase additional insurance or not.