[Editor's Note:  This is a guest post from Douglas Segan, MD, JD.  We have no financial relationship.]


The Issue

You are at the desk of the car rental office.  The odds are that you are a little stressed and in a hurry. The agent at the desk puts some paperwork in front of you and asks you if you want the collision damage waiver (CDW.)  Do you really understand the implications of buying or declining this option?

Case Report – Becoming Aware of my Ignorance

In October 2011 I was driving to my rotation in Ontonagon in a lovely Jeep SUV from Enterprise.  In a forested area of the Upper Peninsula of Michigan I heard a  nausea inducing loud crashing sound. I did not see it coming, but based on the residual debris it appeared that  a bird collided with my vehicle.

The car  worked fine but  there was a subtle dent to the hood.  I naively estimated that the damage would be about one hundred dollars and foolishly believed that the credit card company (American Express) would quickly and seamlessly pay for any damage to the rental vehicle. I was so wrong.

Enterprise sent me a demand letter for about $611 (about $342 for the cost of repairing the damage, $50 for an administrative fee and about $220 for loss of use of the rental car while it was being repaired).  Luckily for me they did not demand the loss in the resale value of the vehicle  ( which they could claim based on the fact that  it now has a record of being damaged and repaired).

What is Collision Damage Waiver?

The CDW, also know as the damage waiver and loss damage waiver, is an optional damage coverage to consider when renting a vehicle. It is technically not a type of insurance but it is a waiver between the renter and the car rental company that the company will waive their right to charge the renter for damages to the vehicle. CDW does not address all the other liability issues that may arise when one is driving a car (such as injuries and damage to other vehicles and property).


Things to do Before your next car rental

It is challenging to give general suggestions about the pros and cons of buying CDW because every credit card company, car rental company and auto insurance policy has a unique and  confusing amount of fine print explaining what they will and will not cover, the amount of the deductible and what rules you have to comply with when you make a claim.

Please do the following before your next car rental:

  1. Talk with your auto insurance agent about your coverage when you rent a car for business or pleasure.   For example, my auto policy will cover the cost of repairs to the rental car (after the deductible,) but they will not pay the administration fee or the loss of use fee.
  2. Talk with your credit card company.  Ask them what they will cover if there is damage to the rental car. In my situation, American Express won’t cover the  loss of use fee since Enterprise won’t provide a fleet record showing that all other cars at my location were being rented during the repair period.
  3. Talk with your rental car company to find out the cost of CDW and the parameters of the  coverage.  For example, Enterprise in Lansing, Michigan charges $14 per day for CDW.

Conclusion

The decision whether to buy  or decline CDW is much more complex than I ever imagined.  Learn about your potential types of financial exposure if there is damage to your rental vehicle (the cost of repair, the administrative fee, the loss of use charges and the reduction in  the resale value because the vehicle now has a damage history.)   Talk with your auto insurance agent, your credit card company and your rental car company to help decide if the cost of CDW is worth the benefits.  One factor that enters the decision for me is the large  number of deer in addition to elk and moose in northern Michigan and the severe and hazardous  winter weather  driving conditions that may occur.

Insuring-Income-250x250-banner[Editor's Note:  I actually have some experience with this topic.  I have had two damaged rental cars in the past, one clearly not my fault, the other probably was, but USAA chose to call it “no-fault.” Between USAA and the credit card company, I wasn't out any money either time. But for the amount of expense we're talking about here, it seems to me that the amount not covered by your insurance company and credit card is probably within a range most physicians can self-insure. I suspect that like most rental car add-ons, this one is usually priced far above the actual value.]

What do you think?  What does YOUR insurance company cover? Do you buy the CDW or just self-insure this cost?  Comment below!