RAC launches worldwide car hire excess insurance: should you get it?

With the launch of the RAC's new insurance policy to cover sky-high damage excess charges, hiring a car on holiday could be about to get a lot cheaper.

From £2.99 a day or £42.99 a year, the RAC's car hire excess insurance protects you from extra charges - as high as £2,000 - if you damage a rental car.

The RAC's insurance is also far cheaper than buying car hire excess insurance at the car rental counter.

Here, we look at how car hire excess insurance works and whether the RAC's policy could save you money.

What is car hire excess insurance?

The cost of insuring your hire car is usually built into the price you pay for renting it out from the company.

If you have an accident or damage the vehicle, you'll have to pay a compulsory excess to make a claim.

This charge is notoriously expensive and can fall anywhere between £500 and £2,000. The excess doesn't necessarily correspond to actual repair costs: one Which? member was charged £1,154 for a chip that should have cost £75 at most to fix.

You're usually obliged to pre-authorise a sum equivalent to the excess on a credit card, for the period that you hire out a car. Car hire excess insurance covers or significantly reduces the cost of this excess for you.

Most car hire companies will offer their own version of car hire excess insurance, often called a 'super damage waiver', but these policies can be very expensive. We found car hire companies charging £110, on average, for a week's insurance in Spain. Buying that insurance from a third party would cost just £21.

• Find out more: best and worst car hire companies revealed.

What does the RAC offer?

The RAC's car hire excess insurance is available for UK residents aged 21 to 85 for £2.99 a day, or £42.99 for an annual policy.

The policy covers car rentals in the UK and worldwide and includes the following features:

• Excess protection up to £6,000 sum insured

• Protection against fire, theft and vandalism

• Cover for bodywork, tyres, roof, windscreen and undercarriage - something often not covered by car rental companies' excess insurance policies

• Cover for towing, breakdown and misfuelling excess costs

• Daily single trip and annual multi-trip formats

• Up to 65 days' continuous cover on any one rental agreement

• The option to book daily single trip and annual policies up to 180 days in advance

• Cover for up to nine additional drivers as standard when named on the rental agreement

How does RAC's policy compare?

The RAC isn't the only provider of car hire excess insurance.

We've rounded up how the RAC's excess insurance policy stacks up against other providers:

_{(W) - Worldwide cover (EEA) - European Economic Area cover}

You can bring down the cost of car hire excess insurance further by going through a cashback site, such as Quidco or TopCashback, which offer up to 25% cashback on the cost of the policy. Bear in mind that cashback is not guaranteed and may take months to arrive.

• Find out more: our reviews of car hire excess insurers

Do you need car hire excess insurance?

Car hire excess insurance can help you save a lot of money if you ever have to make a claim for damage to your rental car.

If you are planning to use a rental car abroad, you could save a significant amount of money by insurance in advance, and not at the car rental desk.

With third-party insurance, such as that provided by the RAC, you'll have to pay the car hire company's excess out of your own pocket. You then claim back these costs from the insurer.

The car hire company will still require you to pre-authorise the excess on a credit card. It's also important that you check and photograph the rental car before driving and after any incidents occur.

Car hire excess insurance isn't compulsory though. If you're comfortable with the prospect of covering the excess, it may be worth forgoing a policy altogether.

• Find out more: how to complain about unexpected car hire charges.

How to find the best car insurance

Whether you're buying car hire excess insurance for your holiday or standard car insurance for your commute, make sure you shop around.

We've combined expert analysis of more than 30 standard car insurance policies, along with feedback from thousands of policyholders, to produce independent car insurance reviews.

For more tips and information, check out our car insurance advice guide.