Rental car companies desperately want you to buy their collision damage waiver (CDW) or loss damage waiver (LDW), and will go to great lengths to make you pay for even the smallest damages if you don’t.
Here’s what you need to know about rental car insurance:
I want complete, bumper-to-bumper, ‘drop off the keys at the counter’ car rental coverage when I travel.
When you buy a CDW, the rental company surrenders its rights to charge you for damage to a rental car – with a few exceptions, such as tire damage or gross negligence. Terms vary widely between rental companies, so be sure to carefully read what you’re signing.
Purchasing a CDW is the only way to achieve 100%, bumper-to-bumper coverage for a rental car. Just drop the keys off at the counter and be on your way. However, CDW insurance is very expensive. Coverage starts around $30 per day and goes up from there. It’s usually much more expensive than the base car rental rate.
A CDW is like buying an extended warranty on electronics – nearly 100% profit for the company. No wonder rental car agents push for it so hard. There’s likely an extra bonus or commission tied to it.
And if I decide not to purchase the CDW?
First, understand that you will pay for any damages to the rental car up front. This is why you typically can’t rent a car with a debit card or a credit card with a low limit. Any damages will be assessed when you return the vehicle, and your credit card will be charged for the full amount of those damages. It will be up to you to recover as much as you can by filing a claim afterward.
Rental car companies play fast and loose with the term “damages” as well. It encompasses much more than just dings and scratches:
- Towing charges – If you’re in an accident and unable to return the vehicle to the rental station.
- Loss of use – Potential revenue lost while the car is out of service and being repaired, figured at the full retail daily rate.
- Diminished value – Potential loss of the vehicle’s resale value due to your damage. Rental car companies typically recycle their inventory every 2-3 years.
- Administrative fees – Because paperwork costs money, too.
What about my existing auto insurance?
If you have collision coverage on your insured vehicle, you probably have some form of short-term rental coverage as well. This varies from company to company. Many policies have a separate rental car coverage option. If you plan on using your existing insurance, check with your agent first to determine what coverage you have.
Your current insurance probably limits coverage to just the US, Canada, and Mexico. If you’re travelling abroad, coverage typically doesn’t apply. Again, consult with your agent.
You must typically pay your policy’s deductible if you file a claim, which may have an adverse effect on your rates. You’ll have to determine if it’s worth filing a claim on a rental if it means an overall price increase.
What if my credit card has rental car coverage?
Most major credit cards provide “free” collision coverage if you use the card to secure the rental. If you read the fine print, you’ll discover that this coverage is usually secondary to your own insurance.
Your credit card won’t cover diminished value or administrative costs, and you still have to pay for everything up front and then file for reimbursement with the card issuer.
As you can imagine, trying to get your money back from a credit card company is probably even less fun than it sounds.
Can I buy third-party insurance coverage?
Yes. If you rent a car through one of the big online travel services like Expedia or Priceline, they offer the option to buy collision coverage for about $10 a day. The cost is a lot less than the rental company’s CDW – but, as with credit card coverage, if you damage the rental, you have to pay in full up front and file a claim later.
The only real upside to third-party coverage is the claims experience, should you need to file one. It’s often better than dealing with the credit card company.
You can also buy third-party insurance directly through Bonzah, Allianz, InsureMyRentalCar.com, and others.
What about liability coverage?
Great question! All of this has been about collision coverage, damage to the rental car itself.
Liability coverage comes from your existing homeowner’s or tenant insurance, and covers far beyond just a rental car. Most of our clients also have an umbrella policy, which adds yet another layer of protection. By law, rental car companies must require liability insurance, but the required amount is typically very low – usually the state minimum.
If you don’t have much liability coverage, you might consider purchasing the rental company’s offering. Your best bet is to consult with your agent to make sure you’re carrying enough liability coverage with your own insurance.
So…what’s my best option?
If you want complete, bumper-to-bumper, ‘drop off the keys at the counter’ car rental coverage then your best option is the overpriced CDW from the rental car company. No other source completely isolates you from risk.
The reality is, most travelers rely on their existing insurance as primary and credit card as secondary insurance – which is sufficient for most people. Hopefully now you are more informed that by doing this, you are accepting some of the risk.
You will pay for damages up front and your own insurance, credit card, or third-party policy may not cover all charges a rental company might impose, and you may not be able to recover all of your financial loss when filing a claim.