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Rental car agreements and insurance

Rental car companies do not provide insurance. It is in fact a liability limitation product. It provides very poor coverage if you damage the rental car. If you are at fault in a car accident you usually have no cover for the damage to the other car!

This factsheet is for information only. It is recommended that you get legal advice about your situation.

This factsheet focusses on situations where there is damage to a rental or hire car, and some of the issues that arise and should be considered.

Case Study

Justin was helping his friend Ann move and he hired a minivan from BIG RENTAL CAR COMPANY. When he signed the contract it included a “Loss Damage Waiver” and for an extra fee, an “Excess Reduction”. Justin chose the option thinking he was going to be insured if anything went wrong. Justin damaged the vehicle when he hit a low carport entry at Ann’s apartment complex. He scraped the top of the minivan!

Justin tried to make a claim on his “insurance” with BIG RENTAL CAR COMPANY. They deducted the whole amount of $5,000 from his credit card and told him he was not covered for the damage to the carport and to expect a call from the owner’s corporation!

WARNING: Rental car companies do not provide insurance like you would normally obtain over your own vehicle. The car hire company may limit your liability for paying damages in some situations but not all situations. It can provide very poor coverage in some situations.


The terms and conditions of a Rental Car Agreement generally outline your responsibilities as a hirer, the costs associated with the hiring, who is permitted to drive the vehicle and what happens in certain events, such as collision and breakdown.

This is not the same as an insurance contract.

The Australian Consumer Law applies to Rental Car Agreements, including consumer protections such as unfair contract terms, and misleading and deceptive conduct.

Generally, Rental Car Agreements can be complicated, unclear and difficult to understand so it is really important that you read them carefully before hiring a car!

When there is an accident in a hire car, what happens and who is responsible for paying what will be set out in the terms and conditions of the Rental Car Agreement.

Terms and conditions will differ from company to company often using different terminology, such as “excess”, “loss waiver,” “damage liability,” “third party loss,” “liability coverage” or “damage protection”.

The Rental Car Agreement generally sets out when you will need to pay for the damage caused to the hire car or a third party and may offer you some cover for any liability you might otherwise have.

When you are choosing a car rental you should read over and familiarise yourself with the Rental Car Agreement, as they are all different and may not cover what you expect.

Rental Car Agreements often contain multiple exclusions outlining when you will not be covered or only covered to an extent at an extra cost. Common exclusions include those relating to:

  • tyres
  • windscreens
  • damage to the roof
  • damage to the under carriage
  • damage caused by hitting animals at dawn or dusk
  • travelling on unsealed roads or
  • any damage arising out of negligence

When choosing a rental car, it is important to understand what will suit you. For example, if you are intending to use the vehicle to travel across Australia, a contract that excludes damage caused on unsealed roads, or from hitting wildlife before 7am or after 7pm may not suit your needs. Sometimes you won’t have a choice, and so you need to be aware of the risks, so that you can be prepared or understand that you need to take extra caution.

If you are hiring a car because your usual car is being serviced or repaired and you have comprehensive car insurance some comprehensive car insurance contracts will cover the use of the substitute hire car. You need to read your comprehensive car insurance Product Disclosure Statement carefully as it may impose some conditions on cover. If your comprehensive car insurance covers the use of a hire car, then, for example, you may not need to pay the additional cost of an excess reduction.

If you are hiring the car whilst on holidays in Australia or overseas, you should check your travel insurance, including any complimentary travel insurance attached to your credit card, to determine whether you are covered for the “hire car excess”. What is covered, and how it operates (for example, whether you need to pay the excess and the insurer refunds it) will depend on your travel insurance Product Disclosure Statement.

IMPORTANT:  Before you take possession of the rental car and drive it from the collection point you should thoroughly inspect it and ensure any pre-existing damage is noted on the contract. If you are picking the car up and do not have an opportunity, take photos of any damage.


You need to be familiar with the requirements of your Rental Car Agreement. It may have specific steps you need to follow such as contacting the rental car company or not leaving the scene if police are involved

Sometimes if you don’t follow the requirement they will charge you a fee and tell you that you are liable for the damage!

Generally it is recommended that you:

  1. Take photos of the damage to the rental car and any other car involved in the accident.
  2. Write down what happened.
  3. Exchange details with all other drivers, including obtaining details of their insurer if they are insured.
  4. Notify the rental company. You must notify them even if you think the damage is not significant.

REMEMBER:  Most Rental Car Agreements allow for the company to deduct the cost of the damage or excess from your credit card immediately. If you cannot afford this cost you should cancel any authorisation to debit your credit card with both the rental car company and the financial institution that issued your credit card immediately. You will still be liable for any costs/damage and you should urgently seek legal advice and make a repayment arrangement to pay those costs if you owe them.


The extent of your liability and whether the rental car company will cover your liability will depend on the wording of the Rental Car Agreement you have entered.

You need to read the Rental Car Agreement carefully, as some or all liability may be covered and some or all may not.

If the rental car company does not cover your liability, then you will be personally liable and you will have to deal with the third party yourself. You should read our I’ve had a car accident and I’m uninsured fact sheet for further help or try our Motor Vehicle Accident Problem Solver.


If you are a third party (that is not the driver of the hire car): You should read our I’ve had a car accident and I’m uninsured fact sheet to find further information on disputing, say, repair costs and seek advice about liability if required. Please note that the Insurance Law Service cannot give advice about liability or fault in motor vehicle accidents.

If you are the hirer of the rental car: If you are the hirer of the rental car and you believe the repair charges are excessive you may be able to dispute it with the rental car company.

You should:

  1. ask for photos; and
  2. itemised invoices.

Rental car companies are not insurance companies and are therefore not subject to the same laws or requirement to be in an external dispute resolution scheme. .

However, some rental car companies have voluntarily signed up to a new scheme called the Australian Car Rental Conciliation Service. The service has been established by the Australian Financial Industry Association and it provides a mechanism for customers to lodge complaints about areas covered by the Car Rental Code of Practice.

Most of the major rental car companies are members of the Australian Financial Industry Associations’ and have committed to comply with the standards set in the Car Rental Code of Practice. You can check to see if your rental car company is a member here: You can contact their dispute resolution service on 1800 366 840 or visit for a copy of the Code of Practice.

The Code of Practice covers minimum standards for the following:

  1. unfair contract terms
  2. damage waiver or coverage products
  3. start of rental inspection procedures
  4. post rental vehicle damage
  5. credit card charging practices
  6. pricing practices

The Code of Practice also obliges members to have an internal dispute resolution process, which includes the following features:

  1. dispute resolution for any disputes, with a decision after 15 days;
  2. a right to go to external dispute resolution, ie the Australian Car Rental Conciliation Service.

The conciliation service is free. It aims to make a recommendation within 30 days of receiving a complaint.

The service however does not have jurisdiction if court proceedings have already commenced.

Where the outcome is favourable to the customer, the conciliation service will look to ensure that any unjustified charges incorrectly raised by the member rental car company are refunded in full. However, the Code of Practice states that:

“We cannot adjudicate on the quantum of the amount charged, only on whether the charge was correctly raised”.

As such, the service may be limited in what it can resolve. The Code of Practice does not state if the decision of the independent reviewer is final.

The conciliation service does not have jurisdiction to award compensation payments.

If the conciliation service is unable to assist you in your matter, you may be entitled to take your complaint to your local state or territory small claims tribunal. Costs and procedure may differ depending on the jurisdiction so it would be a good idea to seek legal advice before taking legal action in relation to a dispute.


  • Have you read the terms and conditions and does it meet your needs? For example, if you intend to drive off road, will you be liable for any damage?
  • Is the rental car company a member of the Australian Finance Industry Association? Check here:
  • Do you need any of the extras offered?
    • Ask yourself whether you can pay the excess if an accident were to occur?
  • Do you have any other insurance that could cover you? Read the product disclosure statement to check what you are covered for. For example:
    • If you are on holidays, your travel insurance may pay for your liability (or excess contribution) under the Rental Car Agreement;
    • If you are hiring a car whilst yours is off the road, your comprehensive car insurance may cover a ‘substitute vehicle’
    • If you have been provided with a car by a third party, do you have an agreement with them? If so, you should read the terms and conditions.
  • When you pick up the car:
    • thoroughly inspect the vehicle
    • take pictures of the vehicle and any existing damage
    • notify the sales staff of any existing damage and have it noted on the contract
  • When you return the car:
    • thoroughly inspect the vehicle
    • take pictures of the vehicle
    • notify the staff if there is any damage and note their response

Last updated: July 2019.