To Buy or Not to Buy: Do You Need the Loss Damage Waiver at the Rental Car Counter?


If you've ever rented a car, you probably dread the moment when the rental car agent asks if you want to purchase rental car insurance. Even if you decide ahead of time that you don't need it, the rental car agent might try to persuade you otherwise. You might even second-guess your decision not to purchase it. 

Know Before You Go
A lot of people don't realize this, but your own auto policy may provide coverage if you have an accident in a rental car. In most cases, you will have the same coverage as you would if you were driving your personal vehicle, subject to your policy’s exclusions and limitations. Of course, if you don't carry comprehensive and collision on your own vehicle and your rental car gets stolen or damaged, you could be on the hook for the loss. Before you go, contact your insurance agent to find out exactly what your auto policy will cover.

Another coverage option? Surprisingly, maybe your credit card company. Some credit card companies will pay for damages to the rented vehicle after your personal insurance company pays, subject to your credit card’s contract provisions. They may even cover towing costs. However, this coverage usually does not extend to damages to another vehicle, theft of personal belongings in the vehicle or liability for bodily injury or property damage. Coverage may also vary depending on the type of card you have. For example, a platinum card may offer more coverage than a gold card. Check with the credit card company you plan to use to pay for the rental car before your trip so you know what your options are. 

How Loss Damage Waiver (LDW) Works
The insurance coverage the rental car company offers to you is sometimes called loss damage waiver (also referred to as collision damage waiver or CDW) and it isn't actually insurance. It's simply an agreement you sign that relieves you of financial responsibility for the car if it is damaged or stolen. They also may offer additional liability coverage that goes beyond what they already carry, which is usually the minimum required by state law. Your own auto policy might have higher limits, so purchasing the additional liability coverage from the rental car company may mean you are paying for something you just don't need. The same goes for personal accident coverage if they offer that to you. Check with the rental car company you plan to use before your trip so you know what your options are. 

When it's Worth It
If you only carry liability on your vehicle, you might want to consider the additional coverages offered by the rental car agency. The extra cost might be worth it to avoid bigger costs if the car is in an accident or stolen.

Perhaps the most important consideration is that rental car companies may charge you for loss of use and depreciation in the event of an accident. For instance, let's say you have a wreck in a car you rented. The time it takes to repair the car is time the car could have theoretically been rented to someone else. Because the car could not be rented out while it was being repaired, the rental car agency may want you to pay a fee for the amount of time the car was out of commission. Also, because many rental car agencies sell cars from their fleet, they may want to charge you a fee to recover depreciation due to the fact that the car was in an accident. Loss of use and depreciation fees are generally not covered by your auto policy or any coverage your credit card company may provide.

Bottom line—find out how much coverage you have on your own before you go the rental car counter. When the rental car agent asks if you want to purchase their insurance, find out what their deductible is and how much coverage their state-required liability provides. Weigh that against your current coverage and the risk of your having an accident, then decide. There's no right or wrong answer, but you can at least make an informed decision.

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