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Rental car confusion: Do consumers really need the collision damage waiver?

PEMCO Insurance's Northwest Poll reveals almost a quarter of Washington drivers buy additional insurance coverage they might not need

June 12, 2006

SEATTLE – One out of five Washington drivers might be wasting money by purchasing the additional Collision Damage Waiver (CDW) offered by rental car companies, according to PEMCO's latest Northwest Insurance Poll.

"Almost half of Washington drivers rented a car for personal reasons in the past three years," said Jon Osterberg, PEMCO's spokesperson. "Of those drivers, 20 percent bought additional rental car insurance coverage they might not have needed."

The drivers who purchased the CDW might have already been covered either by their existing auto insurance policy or by a credit card company, noted Osterberg.

Still, additional rental-car coverage is entirely appropriate for some people and situations, depending on their existing coverage and their tolerance for risk.

Under most auto insurance policies, coverage carries over to a rental car, provided the car is driven within the United States, the driver is authorized by the rental car company to drive the car, and it is driven under temporary circumstances.

"While most auto insurance policies will cover physical damages incurred while renting a car, it's important that consumers contact their insurer to verify coverage," said Osterberg. "In most cases, the limits on their policy carry over to a rental car. For example, if they don't have collision coverage on their regular policy, they aren't covered for a collision in a rental car."

Many consumers are surprised to learn they also have collision protection through their credit card company. Most major credit card companies automatically provide rental car protection if the entire transaction is completed with a credit card.

"The intent is to provide supplemental insurance that augments consumers' existing auto insurance coverage," said Osterberg.

In most cases, for the credit card coverage to be activated, consumers must decline the CDW offered by the rental car company, and the car must be rented under the name of the cardholder. Most credit card companies limit the rental car period to 15 consecutive days or less.

According to Osterberg, consumers who have collision coverage on their auto policies have already carefully decided how much risk of out-of-pocket loss they can afford: it's the deductible amount they chose.

"Buying a CDW is like agreeing to a temporary increase in insurance costs in exchange for zero risk of losing out-of-pocket money," said Osterberg. "Since CDWs are priced on a per-day rate, it might not seem like very much money. Yet most people would balk at paying $3,650 per year to add a limited amount of coverage to one car, and that's how much a $10 per day CDW would cost if annualized.

"We don't want people driving rental cars without insurance coverage," said Osterberg. "At the same time, it's wasteful to buy coverage you might not need. Consumers can save money and relax on vacation by verifying their existing coverage before they leave."

When should consumers buy the CDW?

  1. The CDW is especially helpful when traveling in a foreign country. Most auto insurance policies will not cover damages incurred outside of the United States. In addition, not all credit card companies will cover rented cars outside of the country.
  2. Because Hawaii is a "no-fault insurance" state, damage to a rental car is always the responsibility of the renter. Claims must be paid before you leave Hawaii, unless you've purchased the CDW.
  3. If there's a collision, rental car companies often charge for loss of use that covers revenue they would have received had the car been in service, and they also charge for the related "administrative fees." Those charges can be costly and add up quickly. Most auto insurance policies don't cover loss-of-use charges.
  4. Some rental car companies charge for other-than-collision losses. Depending on the rental agreement, charges may be assessed to the driver.

Consumers also should remember that, aside from limited coverage for clothing and luggage, personal belongings inside a rental car typically are not covered by any auto insurance policy, noted Osterberg.

According to the PEMCO Insurance Northwest Poll, 43 percent of Washington drivers have rented a car for personal reasons within the past three years. Of the drivers who typically don't buy the CDW:

  1. 88 percent report they don't buy the additional CDW because they rely on their existing car insurance.
  2. 9 percent say they don't purchase the CDW because it's too expensive.
  3. 9 percent say they rely on their credit card company for coverage.
  4. 6 percent say they won't get into an accident and won't need the coverage.

Consumers who want to compare their answers to the PEMCO Insurance Northwest Poll results can do so by visiting poll.pemco.com.

About the poll
PEMCO Insurance commissioned the independent, statewide survey that asked Washington homeowners several questions about automobiles and other issues.

Informa Research Services Inc. of Seattle conducted the poll. The sample size, 606 respondents, yields an accuracy of +/- 4 percent at the 95 percent confidence level. In other words, if this study was conducted 100 times, in 95 instances the data will not vary by more than +/- 4 percent.

About PEMCO Insurance
PEMCO Insurance, established in 1949, is a Seattle-based provider of auto, home, boat, life, and umbrella insurance to Washington state residents. PEMCO Insurance is sold by community agents throughout the state and through PEMCO offices. For more information, visit www.pemco.com.

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