Breaking down car hire insurance

Car hire insurance can be confusing and add unnecessary stress to travelling, but understanding your different coverage options can give you peace of mind while potentially saving you thousands of pounds. 

We’ll look at the various hire car insurance types, how they can be combined and how to choose the best option for your needs so that you save money but don’t risk ruining your holiday with a costly accident. This way, you’ll know when you’re renting a car with insurance.

Does car hire include insurance​?

Yes, car hire in Australia typically includes two main types of rental cover: Compulsory Third Party (CTP) insurance and a Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW).

CTP insurance is required by law in Australia and covers compensation for injuries to other people if you’re involved in an accident. However, it does not cover damage to vehicles or property.

Most hire cars also include a basic CDW or LDW. This limits your financial liability if the rental vehicle is damaged or stolen (subject to terms and exclusions).

The catch? Standard CDW usually comes with a high excess, often ranging from around $3,000 to $6,000 depending on the vehicle and rental company. The excess is the amount you’re responsible for paying if the car is damaged or stolen before the waiver applies.

You can reduce this excess by purchasing additional cover directly from the rental company or through a third-party excess insurance provider.

Basic CDW Exclusions

It’s important to note that basic CDWs do not cover all instances of damage. Glass, mirrors, tyres and undercarriage are usually excluded, as hire companies consider damage to these components to be the result of driver negligence. These exclusions make it extra important to drive carefully when using an unfamiliar hire car. Keep an eye out for potholes and road debris, and take care when reversing.

Read your hire agreement carefully, as some situations will void your cover. For instance, driving off paved roads, such as at the beach or on a dirt road, typically violates contracts. Getting stuck or damaging the car in these places will require you to pay the full cost. Similarly, driving recklessly or under the influence, or having an unauthorised driver operate the vehicle, will break your agreement. If you leave the keys in the car and it is stolen, you will be on the hook for the full cost (plus fees).

CDWs also do not cover your personal belongings, mechanical breakdowns and towing, lost keys or misfuelling. You will need to purchase additional cover for those instances.

What is ‘excess’ in insurance​?

Excess is the amount you’re required to pay if your hire car is damaged or stolen. It applies even if you have a basic Collision Damage Waiver (CDW) included in your rental. For example, if your rental agreement has a $5,000 excess and the car is damaged, you could be charged up to $5,000 — even if the total repair cost is higher.

You can reduce or eliminate this excess by purchasing additional cover.

The simplest option is to buy extra protection directly from the hire company, often called a Super CDW (SCDW), Excess Reduction, or Zero Excess Cover. This significantly lowers — or removes — your financial liability. It may also cover common exclusions under a basic CDW, such as damage to tyres, windscreens, glass, roof or undercarriage.

While convenient, this cover can be costly, typically ranging from around $20 to $50 per day, depending on the vehicle and rental provider.

An alternative is to purchase third-party rental car excess insurance before you travel, which is often cheaper — but you may need to pay the excess upfront and claim it back later.

Third-party excess rental car insurance in Australia

Buying separate rental car excess insurance from a third-party provider is often more affordable than purchasing excess reduction at the rental counter.

In Australia, providers such as RentalCover, CarHireExcess.com.au, 1Cover, Allianz, RAA, NRMA and other travel insurers offer excess cover policies. Daily policies typically start from around $8 to $15 per day, depending on the level of cover and trip length. If you hire cars regularly, an annual multi-trip policy can offer better value.

In addition to reimbursing your excess, many third-party policies also cover common CDW exclusions such as tyres, windscreens, roof and undercarriage damage, which are often not included in standard rental agreements.

It’s important to understand how it works: third-party excess insurance is usually reimbursement-based. This means if the hire car is damaged or stolen, you’ll still need to pay the excess to the rental company upfront. You then submit a claim to the insurer to recover the amount.

Be sure to keep all documentation, including the rental agreement, incident report and repair invoice, as you’ll need these to make a claim.

Always double check with the car rental insurance companies directly for the current policies. Based on research March 2026.

Do you need insurance to hire a car​?

Because car hire companies include liability insurance and a basic CDW, you do not need personal auto insurance to hire a car (these policies rarely extend to hire cars anyway). However, you might consider purchasing additional insurance when renting a car to cover any gaps (in addition to the excess), such as your personal possessions and mechanical breakdowns.

The hire company’s Super CDW may cover commonly excluded damage and administrative fees, but rarely covers personal belongings, lost keys, breakdowns, towing or misfuelling. 

Some excess insurance policies cover these situations (see chart above). If yours doesn’t, you can often add extra cover. 

For personal belongings, you may be able to use certain home insurance policies. If you’re travelling with valuables, confirm your coverage and consider comprehensive travel insurance to bundle standalone insurance policies into one.

Travelling abroad

If you’re travelling abroad and plan to hire a car in your destination country, be aware that car insurance on hire cars practices differ. Be sure to familiarise yourself with the other country’s system to protect yourself. 

Car hire insurance in the EU

Car hire insurance on the Continent works similarly to that in the UK, with some differences. In general, third-party liability insurance is included but may be lower than UK standards. Basic CDWs have similar exclusions but carry a higher excess. Spain, in particular, tends to have a high excess. Consider purchasing excess insurance before your trip. You may also consider extras like roadside assistance, Supplemental Liability (SLI) and personal effects insurance (PEI).

Car hire insurance in the USA

U.S. hire companies’ CDWs have no excess (usually called a deductible), but they are expensive. Cheaper collision cover is available from third-party insurers. Liability insurance is usually included in your hire, but the minimums vary by state and can be quite low. Consider purchasing SLI. 

You might also want to protect yourself and your passengers in the event of injury with Personal Accident (PAI) or another visitor medical insurance plan, as medical bills in the US can be extremely high without insurance.

The keys to car hire insurance

The best move is almost always to purchase third-party excess insurance to minimize your financial responsibility and to cover gaps in basic CDWs. Compare policies online and consider adding extra cover where needed. If you travel frequently, annual traveler insurance can offer savings and convenience. Finally, if hiring a car in another country, be sure to familiarise yourself with local insurance practices.