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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Oct 20, 2021

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We’ve all experienced that sinking feeling when renting a car and trying to decide whether to get the insurance or not.

It seems like a no-win situation; you either pay for the additional rental car insurance, or decline it and leave in fear you may be involved in an accident and go broke paying for the damages (which is the exact feeling they try to instill in us).

Waivers Aren’t Insurance

The two main options available to you at the rental car counter are the “Collision Damage Waiver,” known in the industry as the “CDW,” and the “Loss Damage Waiver,” known as the “LDW.”

Both of these options do not constitute insurance of any kind.

Rather, they are sold as a promise from the rental car company to not hold you responsible for paying the costs of physical damage suffered by the car you rent while it’s in your possession.

The rental company has insurance on the car, so what they say at the rental counter is a waiver that indicates that the rental company won’t sue you or ask money if the car is damaged or stolen.

Many people may refuse rental car protection because it duplicates coverage they already have, usually because their own auto insurance policy is still in place.

The difference between CDW insurance and a LDW insurance is the same as the difference between collision coverage and comprehensive coverage on your own auto insurance policy.

[Read more about the difference between collision and comprehensive coverage.]

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Collision Damage Waiver (CDW)

The collision damage waiver is for exactly that…when your rental car experiences a collision with another car or object.

Tip: Colliding with an animal, such as a deer, does not count as collision as far as insurers are concerned.

But, what happens if the car is not damaged by a collision? Perhaps it gets damaged by a flood or hail? Enter the Loss Damage Waiver.

Loss Damage Waiver (LDW)

The Loss Damage Waiver takes the place of your comprehensive coverage on an auto insurance policy. Comprehensive coverage is often referred to as “other-than-collision” nowadays, as insurers attempt to make it easier for us to understand their terminology.

As discussed above, the car you rent can easily be damaged by something other than running into another vehicle.

For example, the car may get stolen. With no auto insurance policy in place, if your rental ride gets stolen, the LDW would be your best friend!

What’s the bottom line?

Depending on your existing personal auto insurance policy, and what state you reside in, you may be able to reject this offer without a care in the world…with one stipulation.

In some states, like Texas for example, your auto policy’s property damage liability coverage will protect you in the event you damage a rental car.

The way the policy is interpreted, your liability for damage to others’ property, in this case the rental car, is covered up to your policy limits.

Basically, it means damage to the rental vehicle is not treated any differently than damage you cause to someone else’s car while driving your own vehicle.

The one stipulation here is that your auto policy has high enough property damage limits to cover the cost of your rental car.

For example, if your policy limits cover $25,000 in property damage liability, and you wreck a $40,000 rental car, you will be on the hook for the remaining $15,000 if the car is completely destroyed.

I highly recommend contacting your insurance company or independent agent to determine your individual coverage and the laws in your state before renting a car and making any assumptions.

It’s important to be informed in order to avoid being taken advantage of, or ending up with a huge bill at the end of a vacation for damaging the rental car.

At the end of the day, the rental car company is counting on your lack of knowledge, hoping you will sign on the dotted line and cough up the money.

Tip: Some credit card issuers provide Collision Damage Waiver coverage on rental cars for damage due to collision or theft.

Your credit card coverage can be valuable. However, you need to contact your insurance company/insurance agent as well as your credit card company to check what coverage you have and when it applies to your rental car before signing the contract.

The coverage that a credit card issuer provides (usually for damage or theft of the rental car) starts when your personal auto policy pays. This is called secondary coverage and could reimburse you for your auto insurance deductible.

Some credit cards offer primary insurance coverage for rental cars, meaning it pays out first and you don’t need to contact your insurance carrier. A primary insurance policy is better because it pays out first, but very few cards have it. It allows you to disregard your personal auto insurance and avoid paying a deductible and maybe see your premiums increase.