Let’s assume you travel and rent a car. You go to the car rental counter, tell the clerk what kind of car you want, the duration of the rental, and verify that you have a driver’s license. Then, the inevitable question: “Do you want CDW”?
At least if you don’t rent cars often, you may be confused. You might think that the clerk is speaking in code. Actually, he or she isn’t. CDW stands for “Collision Damage Waiver.” Any clearer? No, huh? OK, let me explain. But first, and to further complicate things, different car rental companies may refer to it by other names, including:
• Collision damage insurance
• Loss damage waiver
• Loss damage waiver insurance
We’ll call it CDW.
What is Collision Damage Waiver and How Does it Work?
When anything is borrowed or rented from its owner, there’s an understanding that the borrower or renter has the duty to return the item in substantially the same condition as when it was obtained. Technically and legally, the transaction is called a bailment. Rental cars are no different.
A car rental agreement may allow some leeway if only because over the course of the rental, the car racks up mileage, oil is used, (theoretically) tires wear, and there is other deterioration. That’s why rental agreements allow for “normal wear and tear,” and may even ignore, and not impose liability for, scratches and dings that don’t exceed certain dimensions. Anything beyond that will be your financial responsibility when you return the car.
You might be willing to take a chance on small damages that exceed the “normal wear and tear” and pay for them out-of-pocket. But the bigger problem is if a significant collision occurs resulting in severe damage to the rented car, say if it is totaled. Theoretically, you could be on the hook for the full value of the car plus the rental company’s loss of income for losing the car from its fleet.
That scenario may be presented by the rental clerk when offering a collision damage waiver and may make a collision damage waiver seem attractive. Sometimes, CDW is even required by the car rental company. There is a charge for it, analogous to an insurance premium. But, CDW is not insurance. So, what is it? Here are some basics:
- It is a contractual provision absolving you from responsibility for physical damage to the rental car, for which you pay a fee, and which is subject to conditions and limitations;
- If damage to the rented car is more than “normal wear and tear,” you would not be returning it to the rental company in the condition that you got it; at least technically, therefore, you would have breached the car rental agreement;
- If you bought CDW at the start of the rental, you would not ordinarily be responsible for damages even if they are more than the “normal wear and tear” that is usually allowed;
- Note that I said “ordinarily.” That’s because certain factors can negate the CDW. These include drunk driving, reckless driving, speeding, and other factors outside the scope of careful and lawful driving. The limitations will be specified in the CDW;
- CDW is nearly universally available in the United States and is also available in some overseas countries. One of the big differences between the two is that US versions often don’t include deductibles, whereas foreign versions do;
- CDW applies only to physical damage to the rented car. There may be other products, including coverage through your insurance company, which provide liability protection.