What is a Collision Damage Waiver?

Last Updated on September 4, 2020

A collision damage waiver (CDW) plays an important role in rental car insurance. However, it’s easy to get confused with collision damage waivers.

A collision damage waiver is an additional level of insurance offered by a rental car company to its customers. By purchasing a collision damage waiver, you get added insurance on your rental vehicle. Collision damage waivers are optional, and the cost of a CDW can depend on a variety of factors.

What is a collision damage waiver? How do collision damage waivers work? Should you buy a collision damage waiver? Today, we’re explaining everything you need to know about collision damage waivers and how they work.

Collision Damage Waivers and Rental Cars

Collision damage waivers are an important part of renting a car in the United States. Rental car companies offer collision damage waivers as an additional level of car insurance coverage.

If you buy a collision damage waiver when renting a car, then you get additional protection. Typically, a collision damage waiver covers damage to the rental car. It also covers theft of the rental car.

However, a collision damage waiver does not cover bodily injury liability insurance or certain other items.

When you buy a collision damage waiver, you avoid being liable for certain damage to the rental car. If the rental car is stolen, for example, then you do not need to file a claim with your own insurance company. Or, if you damage the rental car in an at-fault collision, then you (and your insurer) are not required to cover this damage.

Typically, the collision damage waiver is a small fee on top of the cost of the rental car. You might pay $30 to rent the car for the day, for example, and then an extra $5 to $15 per day for collision damage waiver coverage.

CDW costs vary widely depending on the rental car company, where you are driving the car, and the type of vehicle you are renting.

You typically hear about collision damage waivers in the United States – but not in other countries. When renting a car in most of Europe, for example, insurance is included in the price. You’re still effectively paying a collision damage waiver – but it’s not optional and it’s bundled into your daily rate.

Do I Need Collision Damage Waiver Coverage?

Collision damage waiver (CDW) coverage can be confusing. Do you really need it? Is it worth paying a few extra dollars per day for peace of mind?

To answer that question, you need to understand how insurance works when renting a vehicle:

• When you rent a vehicle, your ordinary car insurance policy acts as the primary insurance coverage for that vehicle. If you have a standard car insurance policy for your own vehicle, then this policy should extend to any cars you rent.
• If you get into an accident while driving your rental car, then you make a claim through your own insurance company. Your own insurance company is the primary insurer in this situation, and they will cover any bodily injury liability (like medical bills) or property damage liability (like damage to the rental car or another vehicle).
• Your rental car company has insurance on all vehicles. The rental car company is legally required to insure every vehicle it owns. Rental car companies insure these vehicles against theft, damage, and loss of use. Even if you don’t buy the company’s collision damage waiver, the rental car should be protected by at least two insurance policies (your own policy and the rental car company’s policy).

As long as you have an existing insurance policy, then you should be covered. If you own a vehicle and drive it legally, for example, then you should already have insurance. Most insurance policies extend to cover rental cars. Most policies only cover rental periods of less than 30 days. If renting a car for longer than 30 days, then you may need different insurance.

Credit Cards and Collision Damage Waivers

Some drivers get confused with collision damage waivers and credit cards. It’s true your credit card protects you when renting a vehicle, although it doesn’t protect you in the way you think.

If you pay for the entire vehicle rental with your credit card, then your credit card may extend secondary insurance coverage to your rental vehicle for the duration of your rental.

In this situation, your ordinary insurance policy acts as primary coverage, while your credit card acts as secondary coverage. If you need to make a claim, you still file a claim with your own insurance company first. Then, if you exceed your policy limits, your credit card rental car insurance offers a second layer of protection up to the limits of that policy.

Certain premium credit cards offer primary insurance on rental cars. If you have a card with primary rental car insurance, then you can avoid dealing with your insurance company at all. You can make a claim through your credit card company. You avoid a deductible and higher insurance rates. You can also safely avoid paying the collision damage waiver.

In other words, you may already have a collision damage waiver (CDW) through your credit card. Contact your credit card company or check your credit card documentation to verify whether or not you have a collision damage waiver.

What Does the Collision Damage Waiver Cover?

Your rental car company’s collision damage waiver covers certain damage and theft, although it does not cover everything.

The CDW covers damage to the vehicle, for example, including damage from any accidents or collisions.

It should also cover theft of the vehicle. If someone stole your rental car, then the CDW should cover you.

If you buy the CDW from the rental car company, then you should not even have to pay a deductible after an accident or theft. The CDW covers the incident entirely. You can avoid a deductible and avoid paying higher insurance rates in the future.

What Does the Collision Damage Waiver Not Cover?

The CDW does not cover everything related to the rental car.

The CDW does not cover any liability-related expenses, for example. If you collide with another vehicle and cause the passengers in that vehicle to incur $100,000 of medical bills, then the collision damage waiver does not cover this liability.

Similarly, the CDW does not cover risky behaviors or activities that violate the rental terms. If you drove the vehicle off-road, for example, drove under the influence, or were recklessly driving at the time of the accident, then the CDW may not cover you.

A CDW may also not cover theft or loss of the vehicle in certain situations. If you left the vehicle unlocked with the keys in the ignition in a rough part of town, for example, then the CDW will not cover vehicle theft.

Most CDW policies have less obvious exclusions to watch for, including windshield, tire, mirror, or bumper damage. Check the CDW carefully before you buy it to ensure you’re buying the coverage you want.

Do I Need to Buy the Collision Damage Waiver?

In many cases, buying the collision damage waiver is unnecessary. You already have insurance with your ordinary insurance company or through your credit card.

However, some rental car companies and states require you to buy the collision damage waiver. If you cannot prove you have valid insurance, then you may be required to buy the collision damage waiver.

Final Word on Collision Damage Waivers

A collision damage waiver (CDW) is an extra layer of coverage offered by a rental car company. In some cases, it’s in your best interest to buy the collision damage waiver. If you don’t have insurance through your insurer or a credit card, for example, then you may want to buy the CDW (in fact, you may be required to buy it).

In other cases, buying the collision damage waiver is unnecessary, as you are already covered by your insurance company or credit card. Check your insurance policy and credit card policy to determine if buying the collision damage waiver is a good idea.