You might have booked a hire car weeks ago, but finalising the paperwork when you rock up to collect the keys can catch you off guard. One minute you’re excited about your holiday, the next you’re hearing all about loss damage waivers and being asked whether you want rental car excess insurance. Wait, what?
So does car rental come with insurance? What kind of cover does it offer? And what should you do if you have an accident in a rental car?
This guide explains how hire and rental car insurance actually works, the fine print to look out for when you’re signing a rental agreement, the steps to take after an accident, and when your car insurance might cover the cost of hiring a car.
How does rental car insurance in Australia work?
When you hire a car, Compulsory Third Party (CTP) insurance is typically included as part of the rental fee. If you cause an accident that injures someone while you’re driving the hire car, CTP insurance covers the cost of their compensation claim.1
However, above and beyond that cover, car insurance coverage for rental cars is not the same as the insurance you might have for your own car.2
Technically, hire car companies don’t actually provide insurance for rental cars. Instead, they provide what is known as a liability limitation product,2 also called a loss damage waiver (LDW) or a collision damage waiver (CDW).1
This waiver provides limited cover if you damage the car – and often comes with significant exclusions, says the Financial Rights Legal Centre. For example, damage to the car’s windscreen, roof and undercarriage may not be covered – or may only be covered if you pay extra – even if any damage caused is not your fault.2
Furthermore, if you’re involved in an accident that is your fault, this standard liability cover doesn’t usually cover you for any damage you’ve caused to the other car.2
Legal Aid NSW explains that if the rental agreement doesn’t cover damage to other cars or property, the owner of the other car could make a claim against you directly.3 They recommend reading the fine print in any hire car rental agreement carefully, so you understand what is and isn’t covered.3
Do you need hire car excess insurance?
When you arrive to pick up a hire car, you’ll often be asked if you’d like to take out insurance to lower the excess amount. This is called car hire or rental excess insurance.1
The excess is the amount you’re required to pay if you make a claim under the rental car company’s standard liability cover, and it can be up to thousands of dollars in some cases.1
For example, if the rental agreement you signed states that there’s an excess of $3,000, you’d be responsible for paying for any loss or damage to the hire car, up to that amount.1 Taking out rental car excess insurance can reduce or eliminate this amount.1
However, it’s important to note that car hire rental excess insurance often has a number of exclusions, such as damage to windscreens or tyres, accidents that involve a single vehicle only, and damage caused by water.1 So rental car excess insurance may not apply to all claims.
What is credit card car hire insurance?
If you have a credit card, car hire rental excess insurance may be included as a complimentary extra.4 Some travel insurance policies also contain cover for rental car excess.1
If you’re interested in taking out rental car excess insurance, it might be worth checking to see if you’re already covered by your travel insurance or credit card before you buy a policy from a hire car company.1,4
Does my car insurance cover rental cars in Australia?
If your usual car is stolen or needs to be repaired, your car insurance policy may cover the cost of hiring a substitute vehicle. It’s a good idea to check the car insurance Product Disclosure Statement (PDS) to understand if there are any conditions or exclusions that relate to this cover.2
When does Youi cover hire car costs?
Depending on your level of car insurance, Youi covers hire car costs in the following situations where a claim has been accepted:5
| Included benefit | Comprehensive | Third Party Fire & Theft | Third Party Property Only |
| Hire car following a theft | ✔ | ✔ | ✘ |
| Hire car following a not at fault accident | ✔ | ✘ | ✘ |
| Hire car for other insured events | Optional | Optional | ✘ |
What may be covered by Youi
- If you have the appropriate level of insurance and we approve your claim, we’ll cover the cost of a compact hire car.5
- Need something bigger? We’ll cover a suitable alternative, subject to availability.5
- Hire car costs are covered for up to 21 days following a theft or attempted theft and for other insured events if you’ve selected this optional cover.5
- Following a not at fault accident, hire car costs are covered by our Comprehensive car insurance until your car is repaired.5
What’s not covered by Youi
- Loss or damage to the hire car5
- Any liability that results from using the hire car5
- Running costs of the hire car including fuel, toll charges, and fines or tickets.5
How do you hire a car through your car insurance?
If your car insurance policy covers the cost of hiring a car following a theft, a not at fault accident, or another insured event, there are a few steps you’ll need to take if you want to hire a car. At Youi, the process involves:
- Making a claim. For example, if you have Comprehensive or Third Party Fire & Theft insurance, we’ll cover the cost of a hire car after you’ve made a claim for theft or the attempted theft of your car, and we’ve accepted it.5 You can lodge a claim online 24/7 or call 13 9684 to speak with a member of our claims team.
- Leaving us to arrange the hire car. If we do accept your claim, we’ll organise a hire car for you through one of our providers.5
- Finding your own hire car if we can’t supply one. If our provider doesn’t have a hire car available, we’ll let you know. You can then arrange your own. We’ll reimburse you, as long as we’ve approved the cost beforehand.5
What are credit hire courtesy cars?
Credit hire companies provide courtesy cars to drivers while their car is being repaired following an accident that’s not their fault. These cars are often advertised as being “no cost hire cars” because the idea is that the at-fault driver – or their insurance company – will ultimately pay for the car rental.6
In reality, you’re hiring the car on credit while the credit hire company chases the other driver or their insurer to pay the hire car costs.6
The Financial Rights Legal Centre warns that this can be a risky agreement to enter into. Not only could you end up having to pay the hire costs if the credit hire company can’t recover them from the other driver, but your hire contract may also allow the company to take the other driver or their insurer to court in your name. If this happens, and the company loses in court, you may have to pay the other side’s legal costs as well.6
What to do if you have an accident in a rental car
The Financial Rights Legal Centre advises following the steps outlined in your rental car agreement if you have a car accident while you’re driving a hire car. If you don’t, the hire car company might charge you a fee and claim that you’re liable for any damage.2
As a general rule, the steps you need to take after an accident when you’re behind the wheel of a hire car may involve:2
- Taking photos of the damage to the rental car and any other car that’s involved in the accident
- Writing down how the accident occurred
- Exchanging details with the other drivers; if they’re insured, get the details of their insurer too
- Letting the rental company know about the accident, even if you think the damage isn’t significant.2
Your checklist for hiring a car
Whether you’re hiring a car on holiday or while your usual car is being repaired, this checklist with tips from the Financial Rights Legal Centre can help you stay on top of the paperwork and avoid surprises down the track.2
Before you book
- If you need to hire a car because yours has been damaged or stolen, check whether your car insurance covers hire cars.
- Check to see whether your credit card or your travel insurance includes rental car excess cover.
When you’re picking up the keys
- Read the hire car agreement carefully before you sign it so you understand what is – and isn’t – covered.
- Check that the agreement meets your needs. If you’re planning to drive across Australia in the car you’re hiring, a contract that excludes damage caused by driving on unsealed roads or from hitting wildlife may not be the best fit.
- Ask about the excess amount you’d have to pay if the car is damaged, and decide whether you want to take out car hire rental excess insurance.
- Find out when the hire car company is allowed to make charges to your credit or debit card. For example, hire car companies can usually deduct the cost of the excess or any damage from your card immediately.
- If you’re unsure about anything or have questions, ask before you sign the agreement.
When you get to the car
- Inspect the car thoroughly and take pictures of it – including photos of any existing damage.
- If there is existing damage, let the hire car company staff know and ask them to record it on the agreement.2
Rental car insurance can feel confusing, especially when you’re standing at the hire car counter trying to make quick decisions. Hopefully, now that you know a little more about how car insurance for car rentals works, including common exclusions and what car hire rental excess insurance is, you’ll hopefully feel more confident about what to ask and look out for when you’re hiring a car.
Looking for car insurance that includes hire car cover? Start a quote to explore the insurance options available at Youi and find insurance that’s a bit more you-shaped.
Note: Information in this article is relevant as of December 2025 and by its nature will change over time. Check relevant Government websites for updates if this information is important to you.
1 Source: Canstar – Rental car insurance in Australia, April 2025
2 Source: Financial Rights Legal Centre – Rental Cars and Insurance, August 2025
3 Source: Legal Aid NSW – Car accidents involving hire cars
4 Source: Canstar – Credit cards with complimentary domestic car rental excess insurance, August 2025
5 Exclusions, limits and additional fees may apply. For full details, see the Car Insurance PDS.
6 Source: Financial Rights Legal Centre – Courtesy cars after an accident, January 2023
