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Damage waiver

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Damage Waiver, or as it is normally referred to, collision damage waiver (CDW) is an optional collision coverage available while renting a vehicle.

CDW can be expensive, increasing the basic rental cost by up to 20%. In Canada, for example, it can exceed 50% of the cost. One should exercise caution dealing with that 'coverage', since there were reported cases of unscrupulous rental car companies attempting to charge customers post-factum, after the car is returned, without customer's express consent or knowledge. Instead of paying for CDW, renters who have car insurance valid where the car is rented may depend on it, or they may depend on coverage offered by the credit card they pay with. However, protection does vary.

Renters wanting such coverage should check with their existing car insurance as their existing insurer may be able to add it to their regular yearly policy for a small premium. This provides coverage from an insurance company that they know, instead of unregulated (from insurance standpoint) car-rental outfit, which offering you may understand less.

Credit card coverage is particularly important (a) when the rental car has a small scratch or dent, which would not even be reported on a personal car, but which the rental company may have professionally repaired, and (b) when the renter lacks personal car insurance, either collision or comprehensive.

Risks addressed

When a customer does not pay the rental company to waive damage, and a rented car is stolen, or damaged by accident, vandalism, weather, etc., the customer or other insurance must pay to the rental company the full cost of repair, plus administrative charges and loss of use.

The rental company's damage waiver normally covers accidental damage as long as the renter complies with the rental contract (such as authorized drivers, locations, no racing). The waiver may also cover theft, vandalism, and loss of use. The renter sometimes has a choice between waiving all or part of the damage, for different fees.

Contract stipulations do apply when purchasing CDW, and for some rental companies in some countries it may leave the renter responsible for major gaps in coverage. The descriptions above come from rental company websites, under headings like Policies, FAQ, Coverage, or More.

CDW may be required if the renter lacks personal car insurance or credit card coverage. (International Travel News, August 2007, p.30)

Basic CDW/LDW cover (with a large excess still remaining to be paid in the event of theft or accident) will normally come as standard with a rental car or van (if the hire is in Europe, Australia, New Zealand, Africa and for most parts of the Middle and Far East), but normally has to be taken out separately if in the US, Canada, Caribbean and South America.

If renting a vehicle in the US or Canada you can arrange CDW or LDW through either the rental company or through a car hire excess insurer in the UK. Generally the CDW/LDW cover offered in the US still leaves a significant excess which is the responsibility of the policyholder. The minimum levels of insurance are defined by the state the car is rented from, and can result in the renter having a sizable liability for an excess payment. (Moneymaxim.co.uk - http://www.moneymaxim.co.uk/pages/car-hire-insurance-cdw-ldw.htm)

Insurance or not?

CDW meets the basic definition of insurance, since it transfers some risk from the car renter to the rental company. However rental companies do not call it insurance, since they are not licensed to offer insurance, and it is not regulated by insurance commissioners. Rental companies treat it as a waiver of their right to make the renter pay for damage to the car.

Credit Card Coverage of Damage Waiver

Some credit cards offer "secondary" insurance meaning your personal "primary" vehicle insurance will go in effect first. Any remaining amount not covered by your personal vehicle insurance will be covered if under the amount outlined in the credit card disclosure. The primary insurance deductible normally is covered by the credit card (secondary).

The definition of Insurance means "transfer of risk". A CDW is inherently 'not' insurance. The definition of damage waiver simply means that the rental agency waives its right to collect any monies from the renter in case damage to the vehicle occurs. This is not transfer of risk...it is simply a show of the financial stability of the rental agency -- able to absorb damage costs of their fleet. Since the agency is 'self-insured, there is no transfer of risk.

The main difference among the four credit card companies listed below is that MasterCard and Amex cover collisions, theft, vandalism and weather; Visa covers collisions and theft, but omits vandalism and weather; while Discover covers only collisions. However MasterCard is not useful in areas with dirt or gravel roads. Even among these brands, some cards lack coverage, especially debit cards and cards with low credit limits. None of these schemes apply to non-US residents. In addition, no credit card will cover a rental that is being billed out through a third party, such as in the event that an insurance company is being directly billed for the rental.

The following table is an effort at a summary, though not guaranteed. Coverage is complex and changes periodically. Telephone staff do not know the changes. Formal insurance policies govern and are not easily available to cardholders, who are only given summaries, like the links below.

The description as to American Express coverage applies only to certain AmEx cards. The AmEx Platinum Cash Rebate card, for example, comes with no car rental insurance benefit whatsoever.

Mastercard also offers this coverage only to certain cards: "Standard" cards do not give this benefit, only "Gold" or "Platinum" cards.

• "Loss of use" and administration fees are often advertised as covered by credit cards. However, these items are not usually paid since rental car company must provide proof of loss of use and administration fees. The rental agencies are not required to disclose this information therefore the credit card companies will not pay these. The end result is the renter of the vehicle is stuck with these charges (if agreed to on the rental agreement).

Further reading

Harkin, John, Rental Cars and CDW International Travel News, December 2007 - Discusses talking to rental company and carrying card  

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