If you’re renting a vehicle, then you may see something called a loss damage waiver (LDW) or a collision damage waiver (CDW). These are very important insurance terms that you need to know before you sign the rental agreement.
Today, we’re explaining everything you need to know about a collision damage waiver or loss damage waiver.
What is a Damage Waiver?
A collision damage waiver (CDW) and loss damage waiver (LDW) are two similar types of coverage. They’re considered damage waivers. A damage waiver is optional coverage available to you when you rent a car.
When you buy a damage waiver, like a CDW or LDW, the car rental company is waiving its right to make you pay for damages to the rental vehicle.
In other words, an LDW and CDW are optional coverages that waive your financial responsibility for any loss or damage incurred to the rental vehicle.
In many countries, car insurance companies are required to include a collision damage waiver in the basic car rental rate. In the United States, however, a CDW or LDW is often extra.
You don’t necessarily need to buy the CDW or LDW offered by the car rental company. Some credit card companies (including Visa and MasterCard) include coverage similar to the collision damage waiver, which means you don’t need to pay extra for the car insurance company’s CDW. Some travel insurance plans also include it.
What’s Covered by a CDW or LDW?
A damage waiver generally covers all of the following:
- Collision damage
- Fire damage
- Acts of nature
- All damage to the vehicle, regardless of who is at fault
Benefits of a CDW or LDW
- Covers loss or damage to the rental car regardless of who is at fault
- No need to file a claim with your personal insurance company or your credit card company; the insurance company handles the entire claim
- No need to pay a deductible in the event of a claim
Disadvantages of a CDW or LDW
The main disadvantage of a CDW or LDW is that it costs extra money. In the United States, most companies do not include the cost of a CDW or LDW with their rental car agreement. That means if you want to enjoy the benefits of a CDW or LDW, then you need to pay an extra amount.
The cost of a CDW or LDW depends largely on the vehicle. Sometimes, the CDW or LDW is available for only $5 or $10 extra per day. In other cases, the CDW or LDW can double the cost of your car rental.
Generally, you can expect to pay 25% to 50% more when adding a CDW or LDW to your car rental.
There’s one other serious and underreported disadvantage with a CDW or LDW: if you are in an accident and cause damage to property, people, other vehicles, etc., then the CDW is not relevant. The damage will need to be covered by your personal insurance policy or by any additional insurance you purchased. CDW typically covers all damage to the rental vehicle itself, but it does not cover all damage you cause to other people or property.
Do I Need a Damage Waiver?
If you damage your rental car or if your rental car injures someone, then you or the insurance company is liable for the damages. You or the insurance company is required to pay for the medical expenses of the injured person, the property damage to the damaged vehicle, and any other expenses you may have caused others to endure.
It’s up to you to decide whether or not you need a CDW. This decision can be confusing: certain car rental companies include CDW automatically. Certain credit cards extend a CDW to your rental car. Certain states require CDW by law.
In the United States, for example, some U.S. car rental companies include minimum liability insurance in the basic rental charge. Minimum liability insurance is the bare minimum insurance required to legally drive on the road in any state.
Generally, your own car insurance policy will provide basic liability insurance in a rental car. However, if you don’t have your own car insurance policy (say, if you’re renting a car but don’t own a car yourself), then you might have to pay extra for liability insurance from the car rental company.
Making things confusing is that American car rental companies do not publicly disclose whether or not they include basic liability insurance in the cost of the rental car. Some car rental companies include this insurance in some states and not others.
Avis, for example, includes minimum liability insurance in all states except California and Texas. Hertz, Thrifty, Budget, National, and Dollar do not publicly disclose in which states minimum liability insurance is included in the rental car cost.
Some car rental companies will subrogate claims made against this minimum liability car insurance policy. If you get into an accident while driving the rental car, for example, then the car rental company might require you to pay for any damages paid by the car rental company. Hertz, for example, subrogates claims against drivers. That means you’ll have to pay for damages out of pocket if you do not have a CDW or LDW.
Most Countries Include a CDW/LDW Automatically
Debating whether or not you need a CDW is mostly an American problem.
Car rental companies in Europe, Africa, Australia, and other parts of the world will include CDW/LDW insurance on a standard rental car agreement. It’s part of the cost of renting (or “hiring”) a vehicle.
In Canada, meanwhile, all car rentals are required by law to include a minimum of $200,000 in third-party liability insurance, regardless of whether renters have their own insurance or not.
Because of this, most car rental agencies outside of the United States do not offer third party liability insurance. It’s simply part of the fixed cost of renting a vehicle. If you’re renting a vehicle overseas, then you typically don’t need to worry about a CDW or LDW.
Is a CDW Insurance?
There’s some debate about whether or not collision damage waiver should be considered insurance.
Technically, CDW meets the basic definition of insurance because it transfers risk from the car renter (you) to the car rental company.
Nevertheless, car rental companies will avoid labeling their CDW as car insurance. After all, it isn’t an agreed-upon policy with specific coverage limits: it’s simply a waiver between the renter and the company.
Remember: a rental car company is not licensed or regulated to provide car insurance. They cannot legally sell car insurance to people. For these reasons, CDW occupies a sort-of grey area in the world of insurance.
Conclusion: Is a CDW or LDW Worth It?
A CDW or LDW adds considerable cost to a rental car agreement. However, you also get some significant benefits. You can avoid using your own car insurance policy and paying your deductible, for example. You also get peace of mind.
Like most car insurance decisions, it comes down to your personal preference. Some people are willing to pay more money for more insurance and peace of mind while others are willing to take extra risks.