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The Rental Car Dilemma: Collision Damage Waiver

Insurance Insights

If you plan to travel this summer, you might rent a car. Many rental car companies advertise attractive rates, but when it comes time to pay for the rental, you are confronted with options that can increase the rate significantly.

One of the more costly options is the collision damage waiver.

What Is the Collision Damage Waiver?

The collision damage waiver, sometimes referred to as the loss damage waiver, acts as a guarantee to release you from responsibility for the loss of – or damage to – the rental car.

It also usually waives your responsibility for the cost of towing and storing the car, the rental company’s loss of use of the car, and any diminution of its value.

The waiver normally costs around $25 per day, depending on the rental car company and the geographic location.

What Does My Personal Automobile Policy Cover?

If you have personal automobile insurance with collision and comprehensive coverage on at least one vehicle, that coverage generally will transfer to a rental car. However, if you have an accident with the rental car, you typically have to pay the deductible prescribed in your auto insurance policy.

What many people do not realize is that if you access your personal insurance as a result of an accident in a rental car, you can be surcharged on your automobile policy, just as you can be if you have an accident involving your own vehicle. An accident surcharge can increase your premium quite a bit, perhaps by as much as 40 percent.

If you damage the rental car, the rental car company will probably charge you for the loss of use of their vehicle while it is being repaired. Your personal automobile policy might not provide coverage for this. If it does, it is commonly only $20 or $30 per day, up to a maximum of 30 days. The rental car company may expect payment of up to $100 per day, to cover their loss of revenue.

If the rental car is totaled in an accident or stolen, your automobile policy will likely pay the current book value of the car, minus the deductible. The rental car company will want to be paid what it costs to replace the car, which could be considerably higher. You could be held responsible for the difference.

It is important to note that most personal automobile policies provide coverage only within the United States, its territories and possessions, and Canada. If you rent a car elsewhere (for instance, in Europe), you will most likely need to purchase the collision damage waiver as well as liability coverage from the rental car company.

Does My Credit Card Provide Any Coverage?

Many credit card companies provide some coverage for damage to rental vehicles. It is possible that your credit card provider might pick up some of the costs not covered by your auto policy. You should inquire about this in advance of the rental.

The down side is that if the rental car is damaged in an accident, your credit card could be frozen until it is resolved how restitution will be made.

Should I Purchase the Collision Damage Waiver?

Whether to purchase the collision damage waiver for a rental car depends on a variety of personal factors. You should first determine what coverage and deductibles you have on your personal automobile policy and verify that coverage will transfer to the rental car.

You should then check with your credit card companies to see whether they offer coverage that fills in some of the gaps and fees not covered by your auto insurance.

Once you are armed with this knowledge, you can make an informed decision.

Weighing Convenience Against Risk

In summary, that $50-per-day rental car may end up costing $75 per day if you opt for the collision damage waiver, but it can save you money, time, and headaches in the long run. When you are driving an unfamiliar car in an unfamiliar city, your chances of having an accident increase.

It has been our experience that purchasing the collision damage waiver greatly reduces the risk of having disputes with the rental car company. In the event of an accident, you can simply hand over the keys and be on your way.

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