By State Farm

When renting a car, you will be asked if you want to purchase insurance coverage. The rental agent will normally offer you different levels of insurance coverage, including a Loss Damage Waiver (LDW) or Collision Damage Waiver (CDW), which covers the rental vehicle in the event of accidental damage and theft. Many drivers become confused at this point, wondering if they need this insurance.
Here are some guidelines to help you decide:
You have a personal auto policy
What to look for: Read your policies carefully or call your insurance agent to ask for details of coverage. Many auto policies cover rentals with the same type and amount of coverage on your personal vehicle. Also ask about coverage for any administrative fees you may be responsible for, such as loss of use (rental income not earned on a car while it is in the repair shop).
When to consider additional coverage: If your policy does not cover rentals, has a high deductible, or does not include collision coverage or sufficient comprehensive coverage, you may wish to purchase additional coverage from the rental company. Also, insurance is invaluable in foreign countries where you may be responsible for paying for the damage in full before you leave the country.
Your credit card offers rental car insurance
What to look for: Carefully read the documentation that came with your specific credit card and understand the extent of the coverage it provides.
When to consider additional coverage: Depending on the level of coverage your credit card provides, you might consider adding coverage from the renting agency.
You are traveling on business
What to look for: Your employer may provide corporate insurance for rented vehicles.
When to consider additional coverage: Be sure to know the applicable corporate policies and procedures before you rent a car for business.
You do not own a car
What to look for: If you do not own a car and therefore do not carry auto insurance, you will need to purchase insurance from the rental agency.
When to consider additional coverage: Take your time at the rental counter to consider the coverage packages being offered. You may not need the most expensive plan being offered.
You are renting a car in a foreign country
What to look for: Check your auto insurance policy for possible exclusions or limitations on renting a car abroad. Also check for coverage that may be offered by your credit card company or auto club.
When to consider additional coverage: If you are not sufficiently covered, you may wish to purchase third-party travel insurance to cover your foreign rental, or the Loss Damage Waiver from the agency. You will still be liable for any costs resulting from vehicle damage that are not covered by the waiver.