It turns out that about 8% of the car rental industry's revenue comes from selling this rental car insurance option. Therefore, they want you to purchase the insurance. In fact, most rental companies will go after you for the damage if you didn't have the insurance because they want to make a point that you NEED the insurance or you will suffer. This way, next time you are asked the $20 a day question, you will say yes and they will see a nice margin.
What happens if you didn't purchase the insurance? Well, for most people, if you have an auto insurance policy on your own personal car, it likely offers coverage for situations when you rent a car. Additionally, a lot of credit cards offer rental insurance when you use the card to purchase the rental car. Travel agents sometimes try to sell you rental coverage for a fraction of the cost of what the rental car companies offer.
The bottom line is that some form of insurance needs to cover the vehicle you are renting. If you already have a personal policy, find out what your specific policy covers if you rent a car. In most cases, you will not need that additional insurance at the counter. Do the same with your credit cards. AAA cards and American Express are popular cards and typically offer rental coverage if the card is used. Call them and see what is offered. If all else fails and none of those are options for you, try planning ahead and look at a new website called www.insuremyrentalcar.com. This site claims to offer less expensive policies where some rates start at $5 per day. They also offer trip polices and annual policies. Maybe that is a better option for you instead of spending almost the cost of the car per day for insurance.