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Should I purchase CDW insurance?

Your Personal Auto Policy (PAP) generally covers a rental car as it would your “owned” vehicle that is listed on your PAP. The rental vehicle generally needs to be a “temporary substitute”. If it is not temporary and not a substitute of your personal vehicle you may have no coverage. You MUST have Comprehensive and Collision coverage on at least one car under your PAP to have coverage for any physical damage/loss to a car you rent. Since under rental agreements, you will be held liable for any damage or loss which may occur, there are several reasons you should consider purchasing the insurance on a rental car. The following are a few points to consider:
  1. WHO IS THE RENTER – Your personal lines auto policy may not respond to a vehicle not rented in your name. So, if the entity/person listed on the contract is your business, employer, or someone else you are traveling with, their insurance policy may be primary. If you are not on the contract and not the driver in the accident your policy may deem you as having no financial/insurable interest in the rental vehicle.
  2. TYPE OF VEHICLE BEING RENTED AND INTENDED USE – The PAP does not cover all types of vehicles and usage. Vehicles rented for livery or commercial use are not covered as rentals just like they are not if used in such a way on your PAP. Also, vehicles of a certain size or weight are likely not covered. So, if the vehicle is a personal passenger vehicle you are usually fine but it if is large moving vehicle or commercial vehicle you should check with your agent or carrier prior to renting it.
  3. COVERAGE TERRITORY: Your coverage territory is the same on a rental vehicle as your personal vehicle. It does not change simply because you are on vacation and renting a vehicle or on a business trip. The PAP generally covers the USA (50 states), Canada, and USA Territories. So, if you are renting in a foreign country other than Canada you would have NO coverage and need to buy all coverages from the rental company.
  4. DIMINISHED VALUE – The 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 lessor for the “full value” of the vehicle. In addition, the contract may allow them to charge for the “diminished value” of the vehicle due to the damage even if it’s properly repaired. This is the rental company having to disclose to a new buyer that the rental vehicle had previously been wrecked. That perceived reduction in value is something they will try to put a $ amount on and charge you. The PAP does not cover this but in some instances, there are endorsements that can be added to cover such. Check with your agent.
  5. LOSS PAYMENT IMMEDIATE OR WITHIN A FEW DAYS OF THE LOSS – The rental agreement may require IMMEDIATE reimbursement for damages, and it is not uncommon for the rental company to charge your credit card UP TO THE CREDIT LIMIT to cover your deductible, administrative expenses, fees, diminished value, and loss of rents. This can create a significant debt or “max-out” the cards limit, perhaps shortening a vacation, result in litigation, etc.
  6. LOSS OF RENTAL INCOME – You may be responsible for the lessor’s loss of rental income on the damaged vehicle – this sum could be substantial, especially if repairs are not made immediately. This is the rental company trying to charge you for the $ they might have earned had the rental vehicle been in the fleet instead of in a shop getting repaired. The PAP does not cover this.
  7. ADMINISTRATIVE EXPENSES – The rental contract may hold you liable for such expenses as appraisal fees and other “unspecified fees”. Rental contracts often will say you owe them a fee for handling the claim. It can vary from one rental company to another but generally runs no less than $250. This is their expense to pay their people to deal with getting their vehicle fixed and supervising the claim. None of these expenses are normally covered under the PAP.
  8. DISPUTED PRIOR DAMAGE – Most damage waivers you can purchase from the rental company will take care of any physical damage to the rental vehicle with a small or $0 deductible. So if there is a dispute as to if some damage found upon the rental vehicle being returned occurred while in your possession or prior to you renting it you can tell them you purchased the damage waiver so it’s their problem either way. That is why it is also important to make sure you look over the rental car closely and note any prior damages on the rental contract. This would include scratches, dents, interior damages, etc. A small scratch or hole in a seat can be expensive to repair and you don’t want to get charged your deductible and such for damages that existed prior to you renting the vehicle.
  9. EXCLUDED DRIVERS – The contract may exclude younger drivers, or any driver not initially listed on the contract.
  10. PEACE OF MIND – The bottom line is yes; your PAP will cover a personal passenger vehicle rented as temporary substitutes but you could end up paying a lot more than just your deductible should the rental vehicle be damaged while in your possession. The above fees and expenses the contract can make you responsible for are not covered by the PAP and can add up. Buying the damage waiver could allow you to enjoy your vacation or business trip more fully knowing you might not have to make a claim on your PAP nor pay any out of pocket costs for its repairs/replacement.