Car-Rental Insurance and the Collision Damage Waiver (CDW)

By Rick Steves

When you rent a car, you are liable for a very high deductible, sometimes equal to the entire value of the car. Fortunately, there's usually more than one way you can limit your financial risk in case of an accident.

Base-line rates for European rentals nearly always include basic liability coverage — for accident-related damage to anyone or anything outside the car — since the coverage is required under local law. (The company may offer additional liability insurance, but I wouldn't buy this without some extenuating reason.)

It's (usually) up to you, however, to decide how to cover the risk of damage or theft of the car itself. You have three main options, all described below: buying a "collision damage waiver" (CDW) through the car-rental company (easiest but most expensive), using your credit card's coverage (cheapest), and getting collision insurance as part of a larger travel-insurance policy.

You can skip this decision if you’re renting in either Ireland or Italy — where you likely have little choice but to buy the company's CDW (see “Exceptions for Italy and Ireland,” below) — or if you need a car for at least three weeks. In that case you’re probably better off leasing, which includes zero-deductible collision and theft insurance (and is tax-free to boot).

Note that “theft” insurance covers just the loss of the car itself, not anything stolen from inside it (see my tips on protecting your car from thieves).

Car-Rental Company CDW

The simplest solution is to buy a CDW supplement from the car-rental company (it's the main extra included in the "inclusive" rates you'll see in quoted prices). This coverage 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. Note that this "waiver" doesn't actually eliminate the deductible, but just reduces it. CDW covers most of the car if you're in an actual collision, but otherwise usually excludes the undercarriage, roof, tires, windshield, windows, interior, and side mirrors.

CDW generally costs $10–30 a day (figure roughly 30 percent extra). Sometimes the CDW charge itself is a little less when combined with theft/loss insurance as part of an "inclusive" rental rate — it’s often cheaper to pay for this kind of coverage when you book than when you pick up the car.

When purchasing CDW, the reduced deductibles can still be substantial, with most hovering at about $1,000–1,500 (or more, depending on the car type). Most rental companies also offer a second tier of coverage, called “super CDW” or “zero-deductible coverage” to buy down the deductible to zero or near zero (if you didn't opt for this when booking from home, expect to hear a sales pitch from the counter agent). This is pricey — figure about an additional $10–30 per day — but, for some travelers, it’s worth the peace of mind.

When comparing rental options online, beware that some European rental agencies quote “basic” rates that include CDW/theft coverage. (In this case, it’s not an optional extra, so you can’t decline it.) If these CDW-inclusive rates seem too good to be true, they probably are: The un-waived deductible is almost certainly especially high (expect $2,000–3,000) you’ll have to spend extra to buy the “super CDW” anyway to get the deductible down to a reasonable level.

Given these astronomical costs, the alternatives to paying for the rental company's CDW are worth considering carefully.

Credit-Card Coverage

Car companies' CDW surcharges can seem like a racket when you consider that most credit cards already include collision coverage. By paying with the right credit card, you get zero-deductible collision coverage (comparable to "super" CDW)...likely for free. In other words, if your car is damaged or stolen, your credit card will cover whatever costs you're liable for. The only major downside: If you do end up in an accident, dealing with credit-card coverage can be more of a hassle than what you'd encounter with the car-company's CDW. But if a potential headache seems like a worthwhile trade-off for certain — and significant — cost savings, look into this option.

To make this work, first double-check that your card does indeed offer this coverage. Even if it does, remember that restrictions apply and coverage varies between issuers — get a complete description of it from your credit-card company. (Some issuers charge for "premium" car-rental insurance, such as American Express's, which, for about $25 per rental — not per day — covers more than just CDW, and applies to longer rental contracts than what many other cards will cover). Ask in which countries it is applicable, which parts of the car (if any) would be excluded from their coverage, the types of vehicles that are eligible, whether it covers theft/loss, the maximum you'd be reimbursed (if it's less than the price of the car you're renting, the rental company may require you to buy their CDW), and the maximum number of rental days they’ll cover (if your rental period exceeds that time, your card won’t cover any of the rental). Have them explain the worst-case scenario to you. It can be smart to ask them to send you a "Letter of Coverage" — take a hard copy of it with you to the rental counter in Europe.

Once you’ve confirmed your card’s coverage, be sure to decline the CDW offered by your car-rental company — if you accept any coverage offered by the rental agency, you automatically forego any coverage provided by your credit card. (In other words, if you buy CDW that comes with a $1,000 deductible, don’t expect your credit card to cover that deductible.) This may also be the case if you book and prepay for a rental that already includes CDW and/or theft coverage — don't sign any rental contract until you're sure that by doing so you're not accidentally accepting the rental company's coverage.

A card’s collision coverage applies even if the damage happens while it’s being driven by someone else, as long as that other driver, and the cardholder, are both listed as drivers on the rental contract. Remember to use that same card not only to reserve the car, but to pay for the rental itself, as well as any other related fees you're charged, whether when booking at home, or when picking up or dropping off the car in Europe — switching cards can invalidate the coverage.

If you get in 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). When deciding between rental companies, consider that American-based rental companies can be easier to work with if you have a claim to resolve.

Be warned that, as far as some rental companies are concerned, by declining their CDW offer, 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 their CDW.

Since most credit cards don't offer collision insurance to their European cardholders, counter agents — especially those unaccustomed to American clients — may be skeptical that declining their CDW is a prudent move (all the more reason to have a hard copy of your credit-card coverage on hand). Don't be surprised if you hear a warning about how credit cards provide only "secondary" coverage — that's moot as long as you've declined the rental company's coverage and your own personal car insurance doesn't apply to the country you're in. You may also hear that buying the car company's CDW allows you to just "walk away" from a damaged car you're returning. While it's true that the CDW involves less post-accident hassle, the fine print in many a CDW still gives companies plenty of room for wiggling out of their obligation to (mostly) waive your deductible (for example, if the accident didn't involve a second car) — and you need to file a police report no matter what. By already getting a clear explanation of your coverage from your credit-card company, you should be set to ward off a hard sale on the rental-company CDW.

Collision Coverage Through Your Travel-Insurance Provider

If you're already purchasing a travel-insurance policy for your trip, adding collision coverage can be a good idea, especially if your credit card doesn’t include it. Travel Guard, for example, sells affordable renter’s collision insurance as an add-on to its other policies. It’s valid everywhere in Europe except the Republic of Ireland, and some Italian car-rental companies refuse to honor it, as it doesn’t cover you in case of theft. If your car-rental company doesn’t accept this coverage, and you have to buy other coverage to replace it, Travel Guard will refund your money. Note that US states differ on which providers and policies are available to their residents.

If you do go with an insurer's comprehensive travel coverage, be sure to add the company’s name to your rental agreement when you pick up the car.

Exceptions for Italy and Ireland

If you rent a car in Italy, you’re required to have theft insurance, and most car-rental company rates automatically include CDW coverage (which probably won't let you decline). Even if you decline the CDW when you reserve your Italian car (because you’ve arranged other coverage), you may discover — when you show up at the counter — that you must buy it after all.

Car-rental companies in the Republic of Ireland are even less amenable to letting renters waive CDW insurance in favor of credit-card coverage; most companies will only allow a few specific credit-card brands to be used for that purpose. If you do happen to have one of these cards and you want to use its coverage instead of a CDW, be sure to bring written confirmation with you to the rental desk.