If you don’t have automatic coverage under your personal auto policy for any damage to a car you’re renting, regardless of cause, you should buy the optional collision-damage waiver (CDW) from the rental agency.

The CDW coverage supplied by rental car companies usually has two problems:

• Cost: It’s usually about $10 per day. If that amount doesn’t sound like much to you, consider that the bill comes to $3,650 over the course of a year. Compare that to perhaps $500 a year for collision and comprehensive coverage to insure the same car on your personal auto policy. Ouch!
• Restricted coverage: The average CDW coverage is full of restrictions that you would not tolerate if you were buying personal auto insurance. Often excluded are unlisted drivers, such as a spouse or friend who is sharing the driving with you. Other exclusions include driving outside the permitted geographic area, driving in a careless manner, or driving after drinking anything alcoholic – even a single drink. Read the fine print before you sign!

Even if you have insurance coverage for damage to a rental car on your personal auto policy, buying the CDW coverage from the rental agency may be advantageous in two circumstances:

• When protecting your auto insurance rates: One disadvantage of relying on your personal auto insurance policy to pay for damage to a rental car is that if you file a claim for which you are responsible, your rates will usually increase 20 percent to 25 percent for three years (the period of time most insurers surcharge rates for tickets and accidents). You won’t see an increase in your personal auto insurance rates if you file a claim under coverage that you purchased from the rental agency. If your driving record is already borderline, filing another claim against your insurance may even lead to your company canceling your policy. If either of those is an issue for you, you may want to consider buying the coverage from the rental agency and saving your personal auto coverage as a backup.
• When renting for business: Buying the rental agency’s coverage is also a good idea when you’re renting for business purposes and your employer reimburses your expenses. Because you’re using the rental car for your employer’s benefit, it seems reasonable that your employer should pay for the insurance and any claim costs.