Blog Authored by: Ken Mogren, CPCU
It seems rental car companies might make more money selling insurance than renting cars. They typically require you to sign an agreement making you responsible for damage to the car. Then they offer to sell you Collision Damage Waiver (CDW) insurance that lets you off the hook if the car is returned damaged. That would be great if the insurance didn’t typically cost $20-$25 per day.
You can reject the coverage and many people do. Your everyday auto insurance offers quite a bit of protection but we’ll emphasize IT’S NOT THE COMPLETE SOLUTION.
Your liability and collision coverage covers rented vehicles. Most people would have to pay the same deductible they’d pay if the accident happened in their own car, but Minnesota policies pay under the liability section of the policy so there is no deductible.
Sounds good so far, but here’s where things can get sticky. Rental car companies like to tack on administrative fees to cover their time and trouble in dealing with the claim. They might also claim “diminished value” damages beyond the actual cost of repairing the car, saying the car won’t be worth as much when they eventually sell it because it has been in an accident. Your regular auto insurer may consider such charges unreasonable and balk at paying them. If your insurance doesn’t pay, the rental car folks might want you to pay them, and remember, they have your credit card information.
Maybe you should just swallow hard and buy the high priced insurance. You might even rationalize that rental car rates would be much higher if they threw in the insurance. But if you do buy CDW, don’t violate the terms of the rental car agreement. That probably means no alcohol, no unlisted drivers, staying off gravel roads and possibly other nasty surprises. Do any of those and you’re back to whatever your regular auto insurance will do for you because you void your high priced CDW insurance if you break their rules. Also remember your regular auto insurance probably won’t apply in Mexico and most other places outside the US and Canada.
This is not a fun subject to read or write about. As insurance agents, one of the toughest questions we get asked is what should I do if I’m renting a car? We explain it just like above but clients are still left with a difficult decision.