Diminution of Value and Damage Waivers
Whether you are traveling alone for business or with your family for pleasure in a rental car, an often-overlooked exclusion in most personal auto policies is diminution in value. In a rental situation, this is the difference in value between the pre-loss condition of a vehicle when you first leave their lot and its value after a loss when you return it. This difference can be substantial depending on the severity of the accident.
Rental car companies can and will hold you personally responsible for this amount which won’t be paid, in most cases, by your auto insurer. One way to avoid this loss exposure is to purchase the collision damage waiver (CDW), also referred to as the loss damage waiver (LDW), from the car rental company. A prudent course of action is to build the additional cost into your trip to avoid this potential hidden cost if you wreck their vehicle.
These coverage options are for physical damage to the rental vehicle. The cost of the CDW or LDW option may seem expensive when renting a vehicle, but here are some very good reasons why it’s a prudent move for most people to buy the extra coverage from the car rental company:
- There is no deductible if you damage the vehicle. Your personal policy usually has a $500 deductible for collision losses.
- You avoid a rate increase to your personal policy because the claim is settled without your personal insurance company’s involvement.
- Many rental agreements will hold you financially responsible for the down time they incur when their vehicle is being repaired due to an accident. Depending on the type of car you rented it could be anywhere from $30 to $100 for each day they can’t rent the vehicle. Your personal policy may have a limit as little as $20 per day. You would pay the difference.
- The rental car company can charge you for diminution in value – the difference between the vehicle’s pre-loss value and the value after a loss. Your personal insurance does not cover this in the majority of policies.
- If the rental vehicle is totaled you may be required to pay the rental car company for the full value of the vehicle whereas your personal policy would, in most cases, limit the reimbursement to a figure less than full value. The difference is your responsibility to negotiate.
- It saves time when you return the vehicle to the rental company. Imagine missing your flight as you sit down with the rental agent to complete the accident report and then compounding that with reporting your claim to your personal insurance company.
If you have high limits for bodily injury and property damage liability on your personal policy, and maybe you even have a personal umbrella policy to provide excess liability coverage, you are okay declining the liability option the rental companies offer, assuming your policy transfers coverage to a non-owned vehicle. If your limits are low you may want to increase them during the rental period.
Also be aware of territory restrictions. Most policies restrict coverage to the USA, its territories or possessions, Puerto Rico, Canada, and limited distance into Mexico. Best to call your agent beforehand.