Should You Get Collision Damage Insurance for Your Vacation Rental Car?

Published In Insurance

May 15th, 2016

Are you planning to rent a car this summer as part of your vacation getaway? Then you will likely be offered Collision Damage Insurance or a Collision Damage Waiver (CDW) at the car rental counter. You may have heard the term, but what is it really?

You may first think that it is a kind of insurance. It is not insurance, but in a sense, it works in a way that is similar to the collision coverage that you may have on your own car. It goes by different names depending upon the car rental company, so don’t get confused. The names include:

  • Collision Damage Insurance
  • Loss Damage Waiver
  • Collision Damage Waiver
  • Loss Damage Waiver Insurance

Throughout this article, we’ll refer to it as a CDW.

What Is a CDW and How Does It Work?

Implicit in the transaction of renting a vehicle is that it will be returned to the rental company in substantially the same physical condition as it was when you rented it. The agreement may allow a little discretionary wiggle room for minor scratches, but anything that the car rental company deems to be significant damage will be your financial responsibility. Sometimes, the agreement goes so far as to specify the dimensions of the damage that will be overlooked or will be charged to you.

We’re not just talking about cosmetic damage like scratches and dings. You might be willing to take a chance on those and pay for them out-of-pocket if they happen. The bigger issue is if a true collision occurs resulting in severe damage to the rental car, even to the extent of totaling it. In theory, you could be on the hook for the value of the car, but that is not all. Because the rental company is in the business of renting out that car to others and earning income by doing so, there is potential liability for the rental company’s loss of income or profit on that car.

A CDW is normally an optional provision in a vehicle rental agreement that, if selected, can be included in the rental contract. A CDW is sometimes required by the rental company. There is a charge for it, analogous to an insurance premium. But remember, a CDW is not insurance as that term is typically used.

Here are some basic provisions of a typical CDW:

  • When you rent a car, you agree to return it to the rental company in undamaged condition. The rental contract will usually say something like, “normal wear and tear excepted” to give you a little leeway.
  • If a collision occurs while you have the rented car, or if the car sustains some other physical damage such that you obviously can’t return it in undamaged condition, then upon return of the car, you will be in breach of the rental agreement in that respect.
  • If you bought a CDW at the start of the rental, subject to its terms and conditions, you will not (ordinarily) be financially liable for the damage.
  • Note that the preceding bullet-point used the word “ordinarily.” That’s because there are factors that can negate the protection of the CDW. These are factors like drunk driving, reckless driving resulting in damage, speeding and other things that are outside the scope of careful and lawful driving. Those factors are usually specified in the CDW provision of the vehicle rental agreement. If the CDW protection is denied, you can contest it if you feel that it was wrongful, or pay for the damage and move on. Both have pros and cons, so it is your call.
  • CDW may be available for cars that you rent outside of the US, but there can be some big differences. One is that when you buy CDW here, there is usually not a deductible applied to the waiver of liability. But, when it is purchased outside of the US, such as for a foreign vacation, there could be a deductible that may run several thousand dollars. Therefore, the value of a CDW overseas may be effectively less than one on a domestic rental car. Yet again, since you may not be familiar with foreign rules of the road (and that alone can result in collisions), a CDW with a deductible may still be worthwhile.
  • The CDW applies only to physical damage to the rented car. It provides no liability coverage to protect you from claims of a third-party from a collision (but, there are other kinds of products that offer broader protection). Likewise, it provides no protection of any kind to any other car.

Should You Get the CDW?

Whether you flew to your destination or took a road trip there, you may be worn out from all of the logistics involved in first planning your trip and then getting in the plane or on the road. The last thing that you need is another decision to make, like whether or not to buy a CDW.

Here are some factors to consider in deciding. Think about them in advance of the trip and factor them into your choices:

  • The cost of a CDW varies between and among car rental companies. It is usually a per-day charge that can run up to 50% of the cost of the basic car rental amount.
  • As part of your trip planning, see if your credit card company provides a CDW benefit and the extent of it. If it does, keep in mind that you will usually have to use that credit card for the rental to trigger the CDW benefit. Also, compare the extent of the credit card benefit to the one through the car rental company.
  • As part of your trip planning, call your auto insurance agent. See if your collision coverage (and liability coverage) applies to cars that you rent while away from home. But even if it does, a CDW may still be a better bet. That’s because if you make a claim for the damage with your own insurance, it may affect your claims history and result in a rate increase.

After all of this, you may need that vacation.

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