Do you Need to Buy Rental Car Insurance?

Rental car insurance can be a tricky thing. The ‘credit card has got you covered’ theory has been thrown around quite a bit, and as a result, I have often declined the optional rental car insurance coverage when traveling. However, your credit card provider might not have you completely covered after all, upon further inspection. A deeper dive in to this rental car car insurance point-of-sale decision dilemma is needed. So let’s do it. First, we’ll start with some common terminology to break this down.

What is a Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW)?

rental car insurance

To break this down, you must first know the lingo. When you rent a car and are offered ‘coverage’ or ‘insurance’, you’re offered a CDW/LDW damage waiver. It’s not really an insurance policy, rather you are paying the rental company for them to take responsibility (as they are already insured) in the event of damage or theft, versus passing it along to you.

Liability Insurance vs. CDW

Note that CDWs and LDWs don’t cover liability protection (in the event you harm someone or something and legal action is brought against you). You should know how much liability coverage your auto insurance plan has and also potentially look into umbrella liability insurance. Rental providers charge additional fees for this coverage. If you have a personal auto insurance plan, you’re likely covered on rentals (but you should check your plan to be sure).

Before you rent your next car, you should look into the following:

Does your Personal Auto Insurance Policy Cover Damage/Theft on Rentals?

It just might. Every policy differs, and this is something that you can usually add in. If it does not, that’s where your credit card might come in handy. Credit cards may cover damage and theft in the event that you don’t have the coverage via your primary auto insurance. However, if you do have that coverage coverage via your auto insurance plan, it defaults to them.

Rental Car Insurance Coverage from Credit Cards

Credit card companies do not cover liability, but many do offer CDW/LDW type coverage, as noted below. However, the number of cards offering rental CDW/LDW coverage has been dwindling in recent years and I would recommend that you check on the specific card you would like to use as banks might have agreements on cards that differ from the general agreements below.

American Express CDW/LDW Coverage:

The American Express car rental coverage varies, on a per card basis. Check your specific AmEx card at that link for its respective CDW/LDW policy.

Visa CDW/LDW Coverage:

The Visa car rental coverage agreement states:

The Auto Rental Collision Damage Waiver (“Auto Rental CDW”) benefit offers insurance coverage for automobile rentals made with your Visa card. The benefit provides reimbursement (subject to the terms and conditions) for damage due to collision or theft up to the actual cash value of most rental vehicles.

However, things get a little murky after that:

You are eligible only if you are a valid cardholder whose name is embossed on an eligible Visa card issued in the United States. Only you as the primary renter of the vehicle and any additional drivers permitted by the auto rental agreement are covered.

Visa classifies its cards into various categories (e.g. Traditional, Signature, Infinite, Business, and Signature Business), each with varying mention of auto rental coverage. Start at the Visa consumer card benefits and Visa business card benefits pages to dig further.

MasterCard CDW/LDW Coverage:

The MasterCard car rental coverage agreement claims

You must initiate and then pay for the entire rental agreement (tax, gasoline, and airport fees are not considered rental charges) with your covered card and/or the accumulated points from your covered card at the time the vehicle is returned. If a rental company promotion/discount of any kind is initially applied toward payment of the rental vehicle, at least one (1) full day of rental must be billed to your covered card. You must decline the optional collision/damage waiver (or similar coverage) offered by the rental company. You must rent the vehicle in your own name and sign the rental agreement. Your rental agreement must be for a rental period of no more than fifteen (15) consecutive days. Rental periods that exceed or are intended to exceed fifteen (15) consecutive days are not covered. The rented vehicle must have a MSRP that does not exceed $50,000 USD.

Discover CDW/LDW Coverage:

The Discover card rental car insurance benefit was discontinued for all Discover credit card accounts on February 28, 2018.

Some Cautions Before Relying on your Credit Card for Damage & Theft Coverage

It might not always make sense to rely on your credit card for CDW coverage. Always take the following precautions:

  • Read the fine print. Find out how much your specific card covers, under what rental day lengths, if it covers theft, etc.
  • Note that debit cards often do not carry the same coverage.
  • You must actually use the credit card you want protection from on the purchase. Makes sense.
  • Call the company and file the claim immediately (that day or the next day). All providers have a specified period after which notification and claims are no longer accepted.

Car Rental Insurance Checklist:

Here is how I’m going to approach making sure that I’m covered before my next car rental.

1. I will call my primary insurance provider to:

Find out if liability protection is extended to rentals. If it is not, how much would it cost to add it? Compare this to what rental companies charge and go with the cheaper option.

Find out if collision, other damage, and theft are extended to rentals. Again, if it is not, how much would it cost to add it and would it be better to pay for this than just use my credit card protection?

2. I will see what kind of coverage my credit card provider has.

If it’s not enough and my primary insurance provider doesn’t cover it, that is really the only time I’d need to purchase a CDW. And even then, if this is a business trip, find out if your corporate card has better coverage than your personal.

If you’re covered, decline CDW.

That’s it! A half hour of research or so will go a long ways to easing your mind and saving you some money every time you rent.

Car Rental Insurance Discussion:

  • Have you ever been in an accident or had a car rental stolen? What happened? Who foot the bill?
  • Do you still purchase CDW even if your personal plan or credit card has you covered? Why?

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