It’s easy to forget that when you rent a car, you’re “borrowing” a vehicle that costs tens of thousands of dollars from a major corporation. When renting it, you expect the car to be in excellent condition with no dents, dings or scrapes on it. So what happens when the car is damaged during your rental? Even if it wasn’t your fault, the rental car company is, of course, going to expect you to pay for the repairs. Rental car companies know the fear of getting a hefty bill for repairs makes you an easy target to purchase the “insurance” they’ll sell you for just a few dollars a day.
We’ve already written about the excessive charges for gas and the markup on tolls car rental companies charge. Why would we believe that all of a sudden car rental companies will sell you insurance at a reasonable price? It’s not that the coverages they sell aren’t necessary, because they are. It’s moreso you may already have coverage that makes buying their insurance unnecessary. Knowing what coverage you already have allows you to make an informed decision. I’ll also share a trick that lets you avoid the hard sell at the counter. But first, what is the car rental company trying to get you to buy?
Most of the information listed below only applies to cars rented in the United States. Rentals in other countries have different rules and restrictions. Please note I’m neither an insurance agent nor an expert, so I suggest reading the policies including, but not limited to the parts about policy limits, deductibles and exclusions.
Loss Damage Waiver (LDW) or Collision Damage Waiver (CDW)
These names are used interchangeably but they mean the same thing. When you purchase a loss/collision damage waiver, the rental car company won’t look to you for payment to repair the car if it’s damaged or stolen during your rental. Interestingly enough, this is NOT INSURANCE. The vehicle is already insured by the rental car company (or if it’s a large company, it may be self-insured). Think of the waiver as a “free pass” that gets you off the hook in case something happens to the vehicle while it’s in your possession.
As part of the rental agreement, you can be held responsible for more than just the damage to the car. You are also required to pay for the lost rental revenue for the number of days the vehicle is out of service for repairs. Depending on the amount of damage, these charges can add up, so it pays to have some sort of backup plan.
Buying the LDW/CDW from the car rental company is one way to cover these expenses, should they happen. There are also other ways you’re protected that you may not know about.
Auto Insurance
If you own or lease a car and have car insurance in the U.S., you’ll probably have coverage for a rental car for personal use. The rental vehicle will have the same coverage as your primary vehicle and you’ll be responsible for the same deductible and coverage limits as if it was your own car. The downside is that filing a claim for damage to a rental car will affect your policy the same as if the loss was to your car, so your premiums may increase, or you may be dropped from your insurance as a result of the claim.
Credit Cards
Many U.S. credit cards provide coverage for rental car damage. Personal credit cards will cover rentals for personal use and business cards will provide coverage if you’re using the car for business use. For this coverage to take effect, you need to fully pay for the rental with the card.
There are two types of coverage that credit cards provide – secondary and primary. Secondary coverage is what most credit cards offer and it will cover all expenses you are responsible for AFTER all other coverage is exhausted. This means you’ll have to put in a claim to your auto insurance and the credit card insurance will pay for out-of-pocket expenses (things like your deductible and loss of use charges). If you don’t have your own auto insurance, the secondary coverage provided by these cards would then act as your primary coverage.
Some cards provide primary coverage. This is a big difference and makes it worthwhile to use a card with this type of coverage for car rentals. Primary coverage means you DO NOT have to put in a claim to your personal insurance as the credit card coverage will pay for the whole amount of the loss. Some personal cards that provide PRIMARY coverage for damages to a vehicle are:
- Chase Sapphire Preferred
- Chase Sapphire Reserve
- Chase United Mileage Plus Explorer
- Chase United Mileage Plus Club
- Chase Ritz Carlton Rewards Card
- Capital One Venture X
- Bilt Rewards Mastercard
Business cards that provide Primary Coverage for rental cars (only when rented for business use) are:
- Chase Ink Preferred Business Credit Card
- CitiBusiness AAdvantage Platinum Select
- Marriott Rewards Premier Business Credit Card
- United MileagePlus Explorer Business Credit Card
- United Club Business Credit Card
Additional Credit Card Insurance
While many cards from American Express offer secondary coverage, AMEX also offers Premium Car Rental Protection. If you enroll in this program, any car rental that you charge to your American Express cards will automatically be covered with PRIMARY coverage. The price for this coverage varies between $19.95 – $24.95 PER RENTAL (depending on coverage limits and where you live). Note this is a flat charge per rental, regardless if you rent for one day or forty-two days. If you want the peace of mind of having primary coverage and tend to rent cars for longer periods of time, this might be an excellent option for you. NOTE: I’ve signed up for this coverage before and didn’t know that once you sign up it seems to apply to ALL of your American Express cards, not just the one you use to sign up for the program.
Third-Party Insurance
If you don’t have your own car insurance and you don’t have any credit card that provides coverage, you still have another option instead of buying insurance from the car rental company. Several insurance companies will sell you separate Loss Damage Waiver coverage. I haven’t ever used this type of service, so I’d do a bit of checking before buying a policy. Some of the websites in this group I found that were backed by major insurance companies are:
There are limitations on some policies depending on where you are renting the car, so you’ll need to check the individual websites before purchasing.
Travel Websites
If you are from outside the U.S. and book your rental or hired car from a travel website, you can often buy CDW/LDW coverage directly from them when making your reservation.
Rental Car Companies
I include this in the list because it’s an option. However, you’ve hopefully been able to find some other way to get coverage before renting a car. If you haven’t done that, then buying coverage from the rental car company may be your only option.
However, even if you’ve purchased coverage, the rental car employee may try to sell you coverage at the counter. They may receive a commission on the policies they sell or might have a quota they need to meet. You’ll hear them tell you the policy you have isn’t good enough, or you may still have to pay thousands of dollars if something happens to the car, even if it isn’t your fault. You’ve done your homework (ahem – make sure you have done your homework!), so stand your ground. Tell them it’s not necessary to buy the coverage and you already are covered by (whichever option you’ve used from above). They’ll usually know they’re dealing with someone they can’t sway to make the purchase and just finish your paperwork.
An alternative and much easier way to avoid this uncomfortable conversation is to sign up for the Frequent Renter programs offered by rental car companies. These programs are free to apply for, and you can put in your rental preferences like if you want to accept the insurance coverage, pick your preferred car size and say if you want to pre-pay for the gasoline. With most rental companies at larger airports, you’ll be able to skip the counter and go directly to the lot and get your car. If you haven’t signed up for these programs, do so now; it changes the whole rental experience.
Final Thoughts
Hopefully, this article gave you a better understanding of the Loss/Collision Damage Waiver and whether you should pay for it when renting a car. Car rental companies will try to sell you other types of insurance, and I go over what they are and whether you should buy them in this post.
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2 comments
The CDW keeps a car-renter from being held responsible for damage to a rental car caused by a collision but not by theft. On the other hand, LDWs, cover rental car damage caused by both accidents AND theft. Most cards like the CSR require that you turn down the rental car company insurance for that primary coverage to apply. I think this is silly but it is a rule with Chase.
In the USA if you the driver of a car involved in a collision, regardless of the car, and there is a police report filed (which you will want if it is a true collision and not just backing into a post, etc.) it will show up on your CLUE insurance report. The CLUE or other similar reports are like your credit score and they will effect your premiums and ability to retain your personal car insurance. Having an attorney handle your speeding tickets to get them pleaded down to a non-moving violation is also a good move to keep those off your report as well.
Most companies have non-owned insurance coverage for employees so you don’t need to purchase the rental car insurance if you are an employee renting on business but you might want to obtain an insurance card from your company if you travel much on business. If you rent a car for business purposes your personal car insurance will be secondary to your company coverage, even if there is no coverage for your company.
Rental car companies have their own insurance and may be self insured or have high SIR levels so most claims never hit their policy. They will hold the renter responsible for all costs at $0 deductible.
Most US personal car insurance policies will cover you for rental cars in the US and Canada but many exclude Mexico as do they exclude your own car from coverage in Mexico by the way. With most car rental damages the biggest cost to the renter is the loss of income that the car rental company will claim against you.
As an insurance and a travel professional I would suggest to anyone from the USA or Canada that when traveling to other countries outside of North America that you go ahead and buy the full coverage from the rental car company regardless of your credit card coverage. Sure it will cost more but it’s insurance and it will give you peace of mind so you can enjoy your trip. Also download a free timestamp camera app to your smart phone. When you get to your rental car take photos of any damage, all four corners, tires/wheels, mirrors, etc. Also take a photo of the dash with miles and gas level. Do the same when you return the car and keep a copy of the gas receipt when you filled it up and offer a copy to the person checking your car in (especially true with companies like Budget who are bad about the fuel level charge). Offering the attendant a copy of the receipt will help keep them from gouging you for fuel most of the time.
Dan, thanks for that additional perspective as an insurance and travel professional.
How might your suggestions differ for anyone from outside the USA (or Canada) who is traveling to the USA and/or Canada and planning to rent a car?