The Collision Damage Waiver (CDW) Racket
When you rent a car, you are liable for a very high deductible, sometimes equal to the entire value of the car. There are various ways you can limit your financial risk in case of an accident.
Car-Rental Company CDW: The simplest solution is to buy a collision damage waiver (CDW) supplement from the car-rental company. This technically isn't "insurance" — rather, it's a waiver: the car-rental company waives its right to collect a high deductible from you in the event the car is damaged. CDW covers everything except the undercarriage, roof, tires, and windshield. While each company has its own variation of CDW, it generally costs $15–35 a day (figure roughly 30 percent extra) and reduces the deductible, but does not eliminate it. Many rental companies have inclusive plans that come with both theft/loss insurance and a more reasonable CDW — ask. In general, it's cheaper to pay for these coverages when you book than when you pick up the car.
A few years ago, CDW came with a low (or zero) out-of-pocket deductible, and was a good value. But recently car-rental companies have dramatically increased these deductibles, with most now hovering at about $1,000–1,500 (or more, depending on the car type). So, when you pick up the car, the counter agent might try to sell you a second tier of coverage (called "super CDW" or "zero-deductible coverage") to buy down the deductible to zero or near zero. This is pricey — figure about an additional $10–30 per day — but it buys you peace of mind.
Since most of the major car-rental companies now come with these astronomical deductibles, the alternatives to CDW are worth carefully considering.
Credit-Card Coverage: Many credit-card companies offer their own type of zero-deductible collision coverage (comparable to CDW). By paying for your car rental with a credit card that offers this coverage, you can choose to decline the car-rental company's CDW coverage. Relying on credit-card coverage can be a hassle, but now that rental companies' CDW costs are stacking up, it could be worth it. Basically, if your car is damaged or stolen, your credit card will cover whatever cost you're liable for. Of course, restrictions apply and coverage varies between issuers — if you plan to use this coverage, carefully ask your credit-card company what kind of coverage they provide, the countries where the coverage is applicable, the maximum number of rental days they'll provide the coverage, and the types of vehicles they cover. Have them explain the worst-case scenario to you.
To use the coverage provided by your credit card, you'll have to decline the CDW offered by your car-rental company. Therefore, as far as some rental companies are concerned, you're technically liable for the full deductible (which can equal the cost of the car). Because of this, the car-rental company may put a hold on your credit card for the full value of the car. This is bad news if your credit limit is low — particularly if you plan on using that card for other purchases during your trip. (Consider bringing two credit cards — one for the rental car, the other for everything else.) If you don't have enough credit on your card to cover the car's value, the rental company may require you to purchase CDW insurance.
If you have an accident, the rental company will charge your credit card for the value of the damage (up to the deductible amount), or, if the vehicle is stolen, the value of the deductible associated with theft. It's up to you to seek reimbursement for these charges from your credit-card company when you get home (you'll need to submit the police report and the car-rental company's accident report). Big, American-based rental companies are easier to work with if you have a problem.
Be warned that if you accept any coverage offered by the car-rental company, you automatically forego any coverage provided by your credit card. (In other words, if you buy CDW that comes with a reduced $1,000 deductible, don't expect your credit card to cover that deductible). This may also be the case if you pre-book and pre-pay for a rental that already includes CDW and/or theft coverage.
Travel Guard CDW: Travel Guard sells renter's collision insurance at very affordable rates ($9/day plus a one-time $3 service fee covers you up to $35,000, $250 deductible, tel. 800-826-4919). It's valid throughout Europe, except in Italy and the Republic of Ireland. If your car-rental company doesn't honor this coverage, and you have to buy other coverage to replace it, Travel Guard will refund your money. Oddly, residents of Washington State and Texas aren't allowed to buy this coverage.
Remember that some comprehensive travel insurance policies include collision coverage if you rent your car through a travel agent. For details, read Rick's article on Travel Insurance: To Insure or not to Insure?
Leasing: Those needing a car for at least three weeks should look into leasing, which is tax-free and includes zero-deductible collision and theft insurance.
Exceptions: There are some exceptions to what I've described. If you rent a car in Italy, you are required to have theft insurance, and most car-rental companies' rates automatically include CDW coverage (which you sometimes can't decline). It's not unusual to decline CDW when you reserve your Italian car, only to find when you show up at the counter that you must buy it after all.
Car-rental companies in the Republic of Ireland are less amenable to letting renters waive CDW insurance in favor of credit-card coverage; some companies will only allow specific credit card brands to be used for that purpose. As of this writing, the only credit-card companies that were allowed to provide CDW coverage in Ireland were MasterCard Platinum and Diner's Club — so if you have a Visa or American Express, you're forced to buy CDW. Also unique to Ireland is that you sometimes have the option of buying down the deductible on your CDW at the time of booking (for about $15/day), rather than when you pick up the car.
Liability Insurance: It's unusual to purchase additional liability insurance when renting a car in Europe. With most European car-rental companies, any liability coverage you might need is already included in the price. But if you're concerned about this, ask for details when you rent.
The Final Say: Buying CDW — and the supplemental insurance to buy down the deductible, if you choose — is the easiest but priciest option. Using the coverage that comes with your credit card is cheaper, but can involve more hassle. If you're taking a short trip (but not in Italy or Ireland), the simplest solution is to buy Travel Guard's very affordable CDW. For longer trips, leasing is the best way to go.
Updated for 2011. For lots more tips, check out our best-selling Europe Through the Back Door travel skills guidebook.