Investigate Policy Before You Sign That Car Rental Waiver
If you’re planning to rent a car, you might be smart to do a little homework before you get to the rental counter.
The agent will ask if you want to purchase a Collision Damage Waiver or a Loss Damage Waiver, which protects you from paying a high deductible or full value if the car is damaged or stolen.
A CDW or LDW is not insurance: It is a waiver of the rental firm’s right to charge you for or replacement.
This extra coverage can be costly. CDWs and LDWs range from $5 to $14 per day, depending on the state in which the car is rented; California has a $9 maximum.
Before taking such coverage, renters should find out if their personal or company auto insurance policies cover them when driving a rental car. About 60% of auto insurance companies provide such coverage, according to Harvey Seymour of the New York-based Insurance Information Institute. Others limit coverage to cars owned by the insured or stipulate that the policy covers rentals for no more than, say, 28 days a year.
You can also circumvent paying for CDW coverage by charging the rental car on certain credit cards. American Express, MasterCard and Visa Gold are among those that include free CDW coverage.
But if you aren’t covered by personal insurance or a credit card, Seymour advises that “it’s probably better to purchase the CDW to be safe. The rental car companies can get to be kind of belligerent.”
Often, says a Los Angeles representative of a mid-sized rental firm, customers will take the CDW because they don’t want to risk having their personal car insurance increased or cancelled.
If you don’t want to use your personal auto insurance but still want added collision protection, you might want to check with insurance companies or travel firms that sell less expensive, short-term insurance. Travel Guard, a Stevens Point, Wis., company, has several such plans, among them an eight-day policy for coverage up to $25,000 if you damage the rental car. That policy costs $19 and includes other benefits, such as trip cancellation and baggage loss.
Car rental representatives are supposed to explain CDWs and LDWs and tell consumers they are optional--that’s state law in California. But, industry analysts say, such disclosures aren’t always given.
In fact, waiver abuses by rental car firms have become so bad that “there needs to be reform,” says Robert Hunter, president of the National Insurance Consumer Assn. in Alexandria, Va. “We have to eliminate it or regulate it.”
Hunter related two CDW horror stories.
In one, the car rental firm kept a severely damaged car in front of its office. Its agents then told prospective renters that if they didn’t take the CDW, they could end up paying for a totaled car like the one out front.
“In another case, a couple from Canada called me to report that even though they bought the CDW on a rental in Florida, they ended up having to pay for damages to the car,” Hunter says. “There was an accident on the other side of the road and the couple was in a long line of cars going by it. They accidentally rolled into the car in front of them and damaged the bumper. When they took the car back, the company said that the CDW was no good because ‘we consider what you did reckless driving.’ ”
Car rental companies do not purchase added insurance for CDW coverage because they already carry insurance on their fleets. The companies keep the money and gamble that renters won’t wreck the cars.
It’s a sizable amount of revenue for the firms, according to a study two years ago for Hertz, the world’s largest car rental company. The survey estimated that U.S. firms collected $600 million a year through CDWs and LDWs, but paid out only $250 million for repair.
“It used to be a pretty simple decision (to get CDW coverage or not),” says Hunter, explaining that CDW coverage was introduced by rental car firms in the mid-1960s. “In the old days, they charged you $3 or $4 for a $500 deductible. Now they’re charging a lot more and raising the deductible or they have no deductible at all. That puts a lot of pressure on the consumer, if he’s responsible for the price of a car. But $9 a day is too much just for collision insurance. Nobody would buy insurance if it was $9 a day for 365 days. That’s $3,285 a year.”
Many consumer organizations, state attorneys general, insurance groups and even some car rental companies support federal legislation that would prohibit the sale of CDWs and LDWs and make car rental companies liable for damage to their vehicles in most circumstances. Exceptions would include if the renter was driving while drunk or under the influence of drugs.
“The sale of CDWs is so prone to abuse and confusion that it merits special treatment to protect consumers,” says William McCartney, Nebraska insurance director and vice president of the National Assn. of Insurance Commissioners.
“The best and most equitable solution is a statutory prohibition against holding consumers liable for physical damage to (rental) motor vehicles,” he adds.
The insurance commissioners endorsed a federal bill recently introduced by Rep. Cardiss Collins (D-Ill.) that bans sale of CDWs. That bill, which mirrors the NAIC model, is before a subcommittee of the House Committee on Energy and Commerce.
The car rental industry is split over the bill, according to the commissioners’ Thomas Goddard.
“The big ones can absorb the losses, and the little ones say they’ll go out of business,” he says. “It may make (all of) them raise their base rates $2 or so, but consumers, by and large, would pay less. Two dollars is a lot less than the $9 to $14 they’re paying for CDWs.”
Says Joe Russo, Hertz vice president of government and public affairs: “We think the sale of CDWs should be prohibited, and we don’t believe it will raise the cost (of renting a car) significantly. CDWs have been a very profitable ‘after sale’ item for companies to offer artificial low prices. The car rental is $89 a week, but it’s $13 day for the CDW. That’s $91, or $2 more than you pay to rent the car.”
