Spring is here and summer vacations are just around the corner. Renting a car on vacation can be fun, but who pays for the damage, should there be any, to the rental car?
It has been debated for years whether or not a person renting a vehicle should purchase the Collision (or Loss) Damage Waiver from the rental company. Our recommendation is that, in general, you SHOULD purchase the CDW/LDW. Here’s our thinking:
- Loss Valuation. Your Personal Auto Policy (PAP) covers the lesser of the “actual cash value” of the vehicle or the amount “necessary” to repair or replace the damaged property. The rental agreement may contractually obligate you to reimburse the rental company for the “full value” of the vehicle if damaged. Your PAP also does not pay for any “diminuation of value” (if the market value of the vehicle after repairs is less than it was before the accident).
- Loss Payment. The rental agreement may require immediate reimbursement for damages, and it is customary practice for the rental company to charge your credit card. This can create a significant debt, “max” out the card’s limit (perhaps shortening a vacation or business trip), or result in litigation, etc.
- Indirect Losses. You will most likely be responsible for the rental company’s loss of rental income on the damaged unit. Your PAP may have limited or no coverage for these charges, depending upon whether or not you carry “loss of use” coverage.
- Administrative Expenses. The rental contract may make you liable for various “administrative” or loss-related expenses such as towing (e.g., one insured was charged for a 230 mile tow), appraisal, claims adjustment, storage, etc. Most of these expenses are not covered by the PAP.
- Excluded Vehicles & Territories. The PAP normally does not provide physical damage coverage for motorcycles, mopeds, motor homes, or other vehicles that are not private passenger autos, vans or trailers. In addition, use of covered vehicles is limited to the US, its territories and possessions, Puerto Rico and Canada (the rental agreement may also exclude operation outside a specific geographical area).
- Excluded Uses & Drivers. The PAP may include an exclusionary endorsement for certain drivers or may apply only to designated individuals – the CDW will probably also only apply to certain individuals, but operators for which no PAP coverage is available may be afforded protection under the rental agreement by adding them as designated drivers.
- Additional and/or Future Costs. The PAP will most certainly include a deductible in the range of $100-$500 or more. In addition, payment for damage to a rental car may result in a significant premium increase via surcharge or loss of credits.
- Other Tips. When you rent a vehicle, ask for an advanced copy of the rental agreement in order to determine your contractual obligations for damage. A few rental car companies even post them online. Be sure to inspect the rental vehicle for existing damage and get the rental company’s acknowledgment of such damage in writing before leaving the premises. Carry an inexpensive disposable camera with you on your trip to document damage which may occur while using the vehicle.