Car hire excesses – the amount the driver has to pay in the event of a claim – are much higher than on standard car insurance policies. Car hire insurance policies typically have an excess of between £500 and £2,000 and this amount is often pre-authorised on the customer’s credit card.

Excess insurance can reduce this liability to zero – but it comes at a cost if bought at the car hire rental desk.

Traditionally, customers have had to make a choice of whether to take out the hire car company’s own expensive excess insurance or risk not doing so in the hope nothing will happen to the vehicle.

Taking out a standalone policy is much cheaper than buying excess cover from a car hire firm. Specialist policies can often be more comprehensive too.

RAC head of insurance Marcus Latchford said: “Taking out the car hire company’s excess insurance policy is usually very costly which leads to many travellers just taking the chance that nothing bad will happen to their hire vehicle and the excess will not be charged to their card.

“By far the best course of action is to take out specialist insurance to cover the excess amount and any additional damage repair costs that might be incurred via a specialist policy bought in the UK. The trouble is not enough people realise this is an option so they end up losing out financially by buying expensive hire car excess insurance policies, often with a lower level of cover or, worse still, having to pay the excess.”

RAC Insurance has partnered with Zurich Insurance Group’s specialist car hire insurance company, Halo Insurance Services to offer excess insurance.

Policies cost from £2.99 a day or £42.99 for an annual policy, and are available for the UK and Europe, the US and Canada, and worldwide.

The policy covers excess protection up to £6,000, plus protection against fire, theft and vandalism. It also includes cover for bodywork, tyres, roof, windscreen and undercarriage – items that are often not covered by car rental companies’ excess insurance policies. Drivers are also covered for towing, breakdown and mis-fuelling excess costs.

Last month iCarhireinsurance.com, another excess insurance provider, found that car hire damage costs an average £500 to fix but a third of drivers don’t understand how excess liability works.