Car-Rental Insurance and the Collision Damage Waiver (CDW)

By Rick Steves

When you rent a car in the US, your personal car insurance, with collision and comprehensive coverage, typically carries over to your rental. But when driving abroad, your own insurance is unlikely to cover you. Fortunately, there’s usually more than one way to limit your financial risk in case of an accident.

Baseline rates for European rentals nearly always include liability coverage — for accident-related damage to anyone or anything outside the car. (The company may offer additional liability insurance, but I wouldn't buy this without some extenuating reason.)

It's (usually) up to you, however, to decide how to cover the risk of damage to or theft of the car itself. You have three main options:

• Buy a "collision damage waiver" (CDW; also called "loss damage waiver" or LDW by some firms) through the car-rental company (easiest but most expensive),
• Use your credit card's coverage (essentially "free," but more complicated if you need to use it), or
• Get collision insurance as part of a larger travel-insurance policy.

If you're going to Ireland or Italy, be aware that the coverage offered by some credit cards doesn't apply (check the fine print carefully)...meaning that to be covered, you'll have little choice but to buy the company’s CDW. If you need a car for at least three weeks, you're probably better off leasing (described later), which includes zero-deductible collision and theft insurance (and is tax-free to boot). Note that theft insurance covers just the loss of the car itself, not anything stolen from inside it (see my tips on protecting your car from thieves).

Car-Rental Company CDW

The simplest solution is to buy a CDW supplement from the car-rental company. This coverage technically isn't insurance — it's a waiver: The car-rental company waives its right to collect a high deductible from you in the event the car is damaged. Note that this "waiver" doesn't actually eliminate the deductible, but just reduces it. CDW covers most of the car if you're in a collision, but usually excludes the undercarriage, roof, tires, windshield, windows, interior, and side mirrors.

CDW Fees

CDW generally costs $15–30 a day. Sometimes the CDW charge itself is a little less when combined with theft/loss insurance as part of an inclusive rental rate, and it's often cheaper to pay for this kind of coverage when you book than when you pick up the car.

When purchasing CDW, the deductibles can still be substantial, with most hovering at about $1,000–1,500 (or more, depending on the car type). Most rental companies also offer a second tier of coverage, called "super CDW" or "zero-deductible coverage" to buy down the deductible to zero or near zero (if you didn't opt for this when booking from home, expect to hear a sales pitch from the counter agent). This is pricey — figure an additional $10–30 per day — but, for some travelers, the peace of mind is worth it. There's a huge comfort in knowing you can bring your car back in an unrecognizable shamble, toss them the keys, and simply say, "Sorry!"

Inclusive CDW

CDW coverage is most often offered as an extra option, making it easy to compare costs online. But some European rental agencies quote "basic" rates that include CDW/theft coverage. In this case, it's not an optional extra, so you can't decline it and take advantage of other coverage you may have (see next). If a CDW-inclusive rate seems too good to be true, it probably is: The unwaived deductible is almost certainly high (expect $2,000-3,000), so you’ll have to spend extra to buy the "super CDW" anyway to get the deductible down to a reasonable level.

Credit-Card Coverage

Car-company CDW surcharges can seem like a racket when you consider that most American credit cards already include collision coverage in most countries. In fact, many cards include free zero-deductible collision coverage (comparable to "super" CDW) as long as you pay for the rental with that card. In other words, if your car is damaged, your credit card company will cover the costs. The downside: If you do end up in an accident, dealing with credit-card coverage can be more of a hassle than you'd encounter with the car-company CDW. But if a potential headache seems like a worthwhile trade-off for significant cost savings, look into this option.

Confirm your credit card's coverage. First, check that your credit card does indeed offer this coverage, and understand the details. Are all of the countries you're visiting included? (Ireland and/or Italy are often excluded.) Are any parts of the car (such as windshield or tires) excluded? Are all types of vehicles eligible? (Some coverage doesn't apply to luxury vehicles.) Are theft and loss covered, too? Is there a maximum reimbursement allowed? (If it’s less than the price of the car, the rental company may require you to buy their CDW.) And is there a limit to the number of rental days covered? (Coverage is often capped after about 30 days; if your rental period exceeds that number, your card won’t cover any of the rental.) It can be smart to ask for a "Letter of Coverage" and bring a hard copy of it with you to the rental counter in Europe.

A credit card's collision coverage applies even if the damage happens while the car is being driven by someone else, as long as the other driver and the cardholder are both listed as drivers on the rental contract.

Use the same card to book and pay. Remember to use the same card not only to reserve the car, but also to pay for it and any other related fees. Switching cards can invalidate the coverage.

Decline the rental-company's CDW. Once you've confirmed your credit card's coverage, be sure to decline the CDW offered by your car-rental company. If you accept any coverage offered by the rental agency, you automatically forego your credit-card coverage. (In other words, if you buy CDW that comes with a $1,000 deductible, your credit card will not cover that deductible.)

There are two points where you may be faced with this decision. First, when you're reserving the car in advance, you may be offered a "basic" rate (with no additional insurance) and an "inclusive" and/or "full cover" rate (with CDW). To use your credit-card coverage, opt for the rate without any additional insurance.

Then, when you're picking up your car, you'll likely get a sales pitch to buy up to a higher level of CDW protection. Here again, if you want your credit card to cover you, the answer is a polite, "No thanks." This can be an unpleasantly hard sell: In some cases, the rental agent simply wants to pad your bill, while in others, they may genuinely be concerned that you could face a hefty bill in case of damage. But if you've done the homework and know that you're fully covered by your card, you can confidently decline.

In rare circumstances, the rental agent may tell you you're required to pay for some form of insurance. This may be legitimate (based on that country's liability laws), or it may be a misunderstanding. (It can be helpful to have a printout of your credit card policy to show to the rental agent.) This can be a gray area, but as long as you've made every reasonable effort to decline any and all optional coverage, your credit card company should cover you.

Be aware that, as far as some rental companies are concerned, by declining their CDW offer, you're technically liable for the full deductible (which can equal the cost of the car). Because of this, the car-rental company may put a hold on your credit card for the full value of the car. This is bad news if your credit limit is low — particularly if you plan on using that card for other purchases during your trip. (Consider bringing two credit cards: one for the rental car, the other for everything else.) If you don't have enough credit on your card to cover the car's value, the rental company may require you to purchase their CDW.

In case of an accident, collect your paperwork. If you get in an accident, the rental company will charge your credit card for the value of the damage (up to the deductible amount) or, if the vehicle is stolen, the value of the deductible associated with theft. It's then up to you to seek reimbursement for these charges from your credit-card company when you get home. You'll need to submit the police report and the car-rental company's accident report. (When deciding between rental companies, consider that American-based rental companies can be easier to work with if you have a claim to resolve.)

Collision Coverage Through Your Travel-Insurance Provider

If you're already purchasing a travel-insurance policy for your trip, adding collision coverage is an option. If you do go with an insurer's comprehensive travel coverage, be sure to add the insurance company's name to your rental agreement when you pick up the car.