Perspective

Should I buy rental car insurance? | PEMCO

July 30, 2023 by PEMCO Insurance

GettyImages-164644284-(1).jpg A Perspective reader recently asked us the question that every vacationer who rents a car wants to know: “Should I buy the Collision Damage Waiver/Loss Damage Waiver (CDW/LDW) that the rental car agent offers?” Or, in simpler terms: "Is it worth paying extra money for the additional "insurance" that's offered to you by the rental car company when you rent a car?"

And the answer is ... well, maybe.

Your PEMCO auto policy covers cars you rent in the United States and Canada the same as your own car, with the same deductible. But don’t stop reading there! Whether you should buy the CDW/LDW depends on the coverages you’ve selected on your auto policy, how you’ll use the rental car, who is driving, your timeline (would you have the flexibility to deal with a fender-bender?), whether the credit card you used to rent the car automatically offers coverage for rentals, and your personal risk tolerance. Phew. Let's dive in. (We realize this is a lot of information, and we encourage you to bookmark this article for future use, especially in advance of travel.)

Here’s how a CDW/LDW works and what to consider when deciding whether to buy it:

What is a CDW/LDW and how does it protect me when renting a car?

Rental car contracts include language that requires you to pay for damage to the car no matter what – even when the damage is not your fault, is an act of nature, or if the car is vandalized or stolen. How you pay for that damage is up to you – typically, out of your own pocket or by filing a claim through your personal auto insurance (if it provides comprehensive and collision coverages).

If you don’t want that responsibility, the rental agency will sell you a CDW/LDW. Even though most people call it “rental insurance,” that’s not technically what it is. Instead, it’s a waiver that says you’re not responsible for damage, as long as you pay the daily cost of the CDW/LDW and abide by provisions of the rental contract (more about that below).

If you buy the CDW/LDW and the car gets damaged or stolen, the rental car company pays to repair the car and won’t try to recoup any money from you that it loses because of the damage – whether that’s downtime for repairs when the car can’t be rented or a drop in the car’s market value because it was damaged in an accident.

Apart from your obligation to pay for damage to the rental car, buying a CDW/LDW doesn’t change your responsibility in an accident.

(Follow these steps after an accident if another car is involved, someone is hurt, or someone’s property is damaged.)

What coverage might I already have through my auto policy?

To pay for damage to a rental car, your PEMCO policy needs to include comprehensive and collision coverages. That’s in addition to other coverages you have like liability, underinsured motorist, and personal injury protection.

Many drivers with older cars drop comprehensive and collision coverages to save money. For them, the rental company’s CDW/LDW is a must. Without it, they’d be on the hook personally for any damage to the car or to replace it if it’s stolen and never recovered.

Another potential source of coverage you may not realize you have? Your credit card. Sometimes, premium credit cards automatically provide coverage if you use them to rent a vehicle. If you’ve never read your credit card contract, it’s worth checking before you rent your next car. Some provide insurance coverage as primary; others would pay only as secondary coverage, meaning after your own insurance pays.

What if I’m sharing the rental car with someone else?

For coverage from your PEMCO policy to apply, you must be “driving with the rental company’s permission.” That may not be as obvious as it seems. For example, if a spouse who is listed on your PEMCO policy will also be driving, make sure they sign up as a driver on the rental agreement and pay the additional driver fee. Otherwise, that driver doesn’t have the “permission” of the car’s owner. Traveling with a friend who might share the driving? Even if they have the rental company’s permission, your PEMCO policy can’t provide coverage to anyone not listed on your policy (Sorry, Jake).

What do I need to know about renting a motorhome or RV?

Motorhome rental agencies offer CDW/LDWs, just like rental car agencies. We recommend you consider it. Driving a motorhome is much different from driving a car, and you’ll be traveling new roads, backing into campsites, and finding yourself in unfamiliar situations where it would be possible to inadvertently put a ding or two on a bulky, blind spot-prone vehicle.

Your PEMCO Auto policy’s liability coverage automatically extends to motorhomes rented and driven with the owner’s permission. Your homeowners policy would cover any personal property (bedding, pots and pans, etc.) that you take with you, subject to your deductible.

If you buy insurance from the motorhome rental agency, as with any agreement, you’ll want to read the paperwork carefully to understand what is and isn’t covered as it may differ slightly from the CDW/LDWs for cars.

What do I need to know about insurance if I'm renting a vehicle long-term or using it for business?

You’ll want to buy the CDW/LDW. That’s because your PEMCO policy extends coverage for short-term rental use only, generally 28 days or less. Since yours is a personal auto policy, coverage for business use may be limited by the type of vehicle and its use.

What changes with my insurance if I'm renting a car abroad?

Your PEMCO policy covers you only in the United States, U.S. territories, and Canada. The contract can’t protect you when you drive anywhere else.

Travel experts agree that driving outside of the United States and Canada comes with some big caveats. Not only are traffic laws unfamiliar, but countries other than those in Western Europe (and Australia and New Zealand) may have very different views about what “insurance” means and the protection it offers you.

Our best advice: If you’re thinking about driving overseas, talk with a seasoned travel agent, a major U.S. rental car agency that maintains an office in the country you’re visiting, or the local U.S. Consulate in your destination country to ask about the risks and considerations of getting behind the wheel. You may decide you’re better off leaving the driving to someone else! (We think this option sounds more relaxing anyways...)

Can a rental agency charge me for downtime if the rental car is damaged?

Potentially yes, unless you purchase the CDW/LDW, which covers loss of use.

Rental car companies make money only when their cars are rentable. If a rental car gets damaged in an accident, they may require the driver to reimburse them for money lost while the car is at the repair shop. They also may charge administrative fees and expenses, including towing bills, as well as “diminished value” if the car – once it’s been repaired – has a lower market value because it’s been in an accident.

For Washington policyholders, PEMCO is able to pay for some of those unique-to-rental expenses (up to $750) if the rental vehicle is involved in a covered collision or comprehensive loss. While that will definitely help, it may not cover all costs for lost rental revenue the company would accrue if the car has a lengthy wait to get into the repair shop or parts take a long time to arrive (not uncommon with lingering supply chain issues). The coverage is currently unavailable for Oregon policyholders; however, we’re working to change that.

Can a rental agency ask me to pay upfront until my insurance comes through?

Potentially yes unless you purchase the CDW/LDW. That’s true even when the damage is someone else’s fault.

When you sign a rental contract, the agreement is between you and the rental company. PEMCO isn’t a party to the agreement, meaning if something happens to the car, the rental company can demand payment from you without waiting for an insurance settlement. Sorting through that process can be time-consuming and stressful, especially if you’ve been in a fender-bender on the way to the airport and need to catch a plane.

Is there ever a time the CDW/LDW (or "rental car insurance") wouldn’t pay for damages to a rental?

Yes. Besides making sure every driver has signed the rental agreement, you want to understand any restrictions that apply to the rental. For example, rental agencies may deem certain roads off-limits, particularly in Hawaii. If you drive on them and have an accident, you’d be responsible for the damage even with a CDW/LDW.

Coverage also may be void if you violate other terms of the agreement such as driving off-road or driving while impaired. Read the agreement carefully!

What would make it worth it to buy the CDW/LDW ("rental car insurance"), even with my own insurance?

If you have a high deductible on your PEMCO policy, you may end up saving money by buying the CDW/LDW and using it if the car is damaged. Likewise, if you’d be uncomfortable filing a claim under your own insurance, perhaps because you already have a ticket or claim activity, the CDW/LDW would take care of damage to the car without the need to file a claim with your insurance. (However, if there’s damage to someone else’s vehicle or property or if there are injuries, you’d need to file a claim with your insurance, since the CDW/LDW covers damage to the rental car only.)

The decision also depends on your budget and personal risk tolerance. Adding the rental agency’s CDW/LDW can add substantially to your rental bill – as much as $50 a day for luxury or specialty cars. Still, many of our pros opt for the coverage for peace of mind on vacation, knowing there would be no out-of-pocket expenses or travel delays if they damaged the car. A rental agent jokingly told one of our friends,“You can just bring it back in a wheelbarrow and walk away!”

But, hey. Don't forget. You don't have to make this decision on your own.

Before you leave on your trip, talk to your local PEMCO agent or call a PEMCO at 1-800-GO-PEMCO. We’ll go over your policies’ coverages to help you understand the protection you have to ensure carefree travels. So you can worry less and live more, of course! ;)