Car Rental Insurance, the CDW Paradox

Car Rental Insurance

Renting a car is not as simple as you think, especially when it comes to choosing the best service with the safest cars and the most reliable insurance coverage. Sure, you can just rent anything from anyone if you want, but then what happens when you are involved in an accident?

In this article, I look at the car rental insurance paradox that vexes renters time after time.

Collision damage waiver, CDW.

You stand at the counter, or online, and you have suddenly faced with a slip of paper or a pop-up box stating the famous all-purpose “Drop the Keys and Forget It” insurance package, the CDW.

Well to start off with, even if you didn’t choose it, when you go to pick up the car, the attendant will probably try to re-persuade, but don’t give in. Why? Because the price is so overvalued, you could take your entire family out for a Pizza Hut meal and have enough change for a tip.

On the other hand, what is CDW? Well, it’s an insurance package that literally gives you a free pass even in a multi-car collision with nuclear weapons, Anthrax and a moped. You don’t pay a thing, and all this for a minimum cost of no less than $30 for the most basic model, and always much higher for the more expensive models.

Consider that the rental company pays around $3 to $4 a day to an actuarial pool. This means that all the difference is pure profit. And you thought buying drinks at a hotel was expensive.

However, with this price comes peace of mind, so the question is: is it worth it?

Pay Up Front

If you rely on your own insurance, such as a credit card that provides insurance options, you will have to play a damage claim up-front. Only after paying, can you try to recover the lost monies in a long and convoluted process that might end up costing you more than you get back.

The Pay Upfront issues I processed with the credit card details you give the rental company to take out the vehicle. They put some of the credit “on ice” to cover potential damages, as such, the entire amount is in the thousands, and while you might not feel it, since it doesn’t leave the card physically, it does get held on ice, so your credit cards limit is reduced by this action.

This is why the CDW is so profitable for you too, it costs you more now, and in the event of an accident, saves you later.

Damage Myths

If you don’t invest in CDW, you end up paying for more damage control then a “dent” to fix. What you get charged for is “Loss of use,” this is the estimated time lost the car could provide income, and they don’t mean operating hours, they go 24/7 with this one. Towing costs, since the car has to be towed even if it’s only a slight scratch on the paint. “Diminished value,” which stands for the depreciated cost of the sales price of the car as a used car. Remember that the average lifespan of rental is 2 years, so you get a hefty percentage of the lost car value added to the bill.

Next, come the ever popular administrative fees, these are calculated at CEO wage per hour when a basic clerk and some automated software does process the paperwork.

What to do?

If you don’t want to pay the CDW, then there are three options to choose from, these include:

Use Your Existing Insurance

Check your current policy; it might have a clause that covers short-term rental, if not, find out what this would cost you and factor this against how many times a year you rent a car. It could work out as being much better than the CDW. Just note that this only works in the USA. If you rent aboard this is not an option.

Use Credit Card Insurance

Most, if not all credit card companies offer various travel and renters insurance policies. They usually cover “free” collision coverage for car rentals. However, you need to use the card in question to pay for the rental service in the first place, and you need to make sure you activate the policy via the credit card site.

What a credit card typically covers is (as taken from a credit card insurance policy statement):

“Physical damage and/or theft of the covered rental vehicle. Valid loss-of-use charges assessed by the rental company while the damaged vehicle is being repaired and is not available for use, as substantiated in the company’s fleet utilization log. Reasonable and customary towing charges related to a covered loss to take the vehicle to the nearest qualified repair facility.”

Take heed to the important wording: “as substantiated in the company’s fleet utilization log” this is an issue with the lesser car rental companies that don’t give out such information to credit card companies.

Note that the more exclusive your card, the more coverage you get.

This option is good for international rental services.

Third-Party Car Rental Insurance

A lot of people rent cars as part of a package deal through their travel agency, such as Expedia and Travelocity. These online travel agencies (OTA) provide a cheaper CDW, but this comes at a cost. The cost is that you have to pay upfront and claim later.

As a rule, the concept of paying out over three to ten times the amount you would normally pay for a CDW is annoying. However, the car rental companies figure out that most people will factor in the overall cost and check that the CDW is usually around 10% of the total rental fee, which a lot of renters consider to be an acceptable hassle-free rate when compared with the hand on pay upfront alternatives.

Conclusions

Sometimes the hassle of processing insurance is too much of an issue for most travelers to handle, and they prefer a quiet voyage without having to remember every insurance cover by different sources. The CDW is overpriced, but it does come with an easy rest advantage, and for someone that has been involved in two auto accidents in different countries in the last 40 years, I can assure you that extra $30 was a price well paid after the lesson learned the first time.

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