The car rental company has their own insurance for the car. If you damage the rental car during the hire period, you will be financially liable to pay for the assessed damage cost — up to the excess value specified in your rental agreement — with the car rental company only.
So for example, if the car rental company insures the hire car for $20,000, the rental vehicle excess component (capped amount) that you are liable for if you damage the car might be $4,000.
This would mean that you would be liable to pay for the first $4,000 of car damage and the car rental company would pay costs above the rental vehicle excess value (up to $16,000 remaining).
How does the car rental company declare a vehicle to be a write-off?
After the accident, the car rental company representative will assess the severity of the damage of your vehicle. If the vehicle sustained severe damage that is either beyond repair or makes it not safe to go back on the road, then your rental car is considered a write-off. If the cost of repairs is also higher than the insured value of your rental car, then they will declare it a write-off as well.
For Example :
Sarah had a car accident
Sarah hires a car in Australia, which has a rental vehicle excess amount of $5000. The car is valued at $20,000. While driving, Sarah is involved in a car accident. The car rental company assesses the cost of damage to be worth more than the value of the car, declaring it as a write-off. Because Sarah did not purchase any insurance or excess reduction products, she has to pay $5,000 for the damage, while the car is insured by the car rental company for the additional $15,000. Sarah is only liable to pay the excess amount. If she had purchased rental vehicle excess insurance that covered $5,000, Sarah could make a claim for reimbursement of the $5,000.