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Top 10 Reasons to Purchase the Rental Car CDW/LDW
To
paraphrase Shakespeare, “To purchase the CDW or not to
purchase the CDW, that
is the question.”
It has been debated for years whether or not a person
renting a
vehicle should
purchase the Collision (or Loss) Damage Waiver from the
rental company.
Our
recommendation is that consumers, in general, SHOULD
purchase
the CDW/LDW,
at least for short-term rentals. Our reasons are given
below.
-
Loss Valuation.
The Personal Auto Policy (PAP) covers the lesser of the “actual
cash value” of the vehicle or the amount “necessary” to
repair or replace the damaged property. The rental agreement
may very well contractually obligate you to reimburse the
rental company for the “full value” of the vehicle. The PAP
also does not pay for any “betterment” (increased
value of new parts replacing old ones) of the vehicle, nor
any “diminution” of value (if the market value of the
vehicle after repairs is less than that before the
accident).
-
Loss Settlement.
As implied above, there may very well be disagreement over the
value of the vehicle or the amount charged for labor and
materials to repair it. Your auto policy’s Appraisal clause
may be invoked with its accompanying costs. More
importantly, the insurance company has the right to “...inspect and appraise the damaged property before its
repair or disposal.” However, the rental company, unlike
you, is not contractually obligated to the insurer...it may
choose to make the repairs immediately, potentially
resulting in a lack of PAP coverage because of failure to
comply with this contractual condition. In any case,
purchase of the CDW usually allows the renter to “walk away”
without the headaches involved in adjusting an auto claim.
-
Loss Payment.
The rental agreement may require immediate reimbursement for
damages, and it is customary practice for the rental company
to charge your credit card. This can create a significant
debt, “max” out the card's credit limit (perhaps shortening
a vacation or business trip), result in litigation, etc.
-
Loss Damage Waivers (LDW).
Rental
agreements often make the renter responsible for any loss in value beyond normal wear and tear, regardless of the
cause and regardless of fault. In order for your PAP to
respond, you must insure at least one vehicle for both
collision and other-than-collision (often called
“comprehensive”) coverage. If not, your policy will not
respond to rental car damage and loss of use claims.
-
Indirect Losses.
You will most likely will be responsible for the rental company’s
loss of rental income on the damaged unit. Your policy has
limited coverage for these charges.
-
Administrative Expenses.
The rental
contract may make the insured liable for various
“administrative” or loss-related expenses such as towing
(e.g., one insured was charged for a 230-mile tow),
appraisal, claims adjustment, storage, etc. Some of these
expenses may not be covered by the PAP.
-
Other Insurance.
The PAP says that it is excess over: (1) any coverage provided by
the owner of the auto, (2) any other applicable physical
damage insurance, and (3) any other source of recovery
applicable to the loss—travel policies, credit card
coverages, etc. The potential controversy over who pays what
is obvious and can result in litigation. In addition, keep
in mind that many states have statutes, proprietary policy
forms, and/or case law precedents that may govern this and
other rental car exposures
-
Excluded Vehicles & Territories.
The PAP normally
does not provide physical damage coverage for motorcycles,
mopeds, motor homes, or other vehicles that are not private
passenger autos, pickups, vans, or trailers. In addition,
use of covered vehicles is limited to the U.S., its
territories and possessions, Puerto Rico, and Canada (the
rental agreement may also exclude operation outside a
specific geographical area). If you rent a trailer (U-Haul,
camper trailer, etc.), coverage is limited to $500.
-
Excluded Uses & Drivers.
The PAP may have
limitations on use of vehicles that are not otherwise
excluded by the rental agreement CDW or LDW. Also, the PAP
may include an exclusionary endorsement for certain drivers
or may apply only to designated individuals—the CDW will
probably also only apply to certain individuals, but
operators for which no PAP coverage is available may be
afforded protection under the rental agreement by adding
them as designated drivers.
-
Additional and/or Future
Costs. The PAP will most
certainly include a deductible in the range of $100-$500 or
more. In addition, payment for damage to a rental car may
result in a significant premium increase (if not nonrenewal)
via surcharges or loss of credits. Although most CDW/LDW
fees are considered outrageous, if not unconscionable, we
advise you to purchase the CDW/LDW for short-term rentals.
If anything, this will give you peace of mind while on
vacation or business, and it could save you from a lot of
inconvenience and lost time and money.
Other
Tips:
-
When you rent a
vehicle, ask for an advance copy of the rental agreement in
order to determine your contractual obligations for
damage...a few rental car companies post this information on
their web sites.
Here is a listing
of several national rental car company web sites:
-
In addition, if
you will be traveling abroad, check out
www.auto-europe.com
for information
about driving requirements and rental car programs in Europe
and other countries around the world.
-
Be sure to
inspect the rental vehicle for existing damage to the
interior and exterior and get their acknowledgement of such
damage in writing before leaving the premises.
-
Be sure to take
proof of insurance with you on your trip.
-
Carry an
inexpensive disposable camera with you on your trip to
document existing damage or damage that may occur while
using the vehicle.
Copyright
1999 by Independent Insurance Agents of America. All rights
reserved. Reprinted with permission. |
