As spring approaches and with it the promise of warmer weather, many parents in the Northeast begin to contemplate the possibility of traveling south for their kids’ Spring Break. When traveling south, or anywhere for that matter, renting a car is often necessary. When renting a car, a certain decision looms larger than most: is it worth it to purchase the seemingly expensive LDW coverage from the rental car company? This is a question that we as insurance agents receive all the time where the answer largely depends on your ability to stomach risk.
What is a LDW?
LDW stands for Loss Damage Waiver, which is insurance speak for the insurance policy you can purchase from the rental car company. It provides physical damage coverage for the rental car and protects from other fees you may have otherwise been responsible for without it.
What do most people do?
People often forgo the LDW if they have full coverage on their own car because they view it as a “racket”; as evidenced in the rental car scene in Meet the Parents (2000) where Greg Focker, played by Ben Stiller, goes on a rant essentially about how the LDW solely exists for rental car companies to make more money. He famously doesn’t purchase it, which later comes back to bite him when he intentionally throws a brick at his father-in-law’s bulletproof RV that ends up smashing the rental car windshield. Comically, Robert Deniro’s character, Jack Byrnes, pats him on the shoulder and says, “The rental insurance will cover it.” The sadness on Focker’s face is palpable.
However, your personal auto policy doesn’t cover everything you may be responsible for as the auto rental agreement you sign, regardless of selecting the LDW or not, always favors the rental car company.
What your personal auto policy doesn’t cover
· Your auto insurance policy typically covers a vehicle’s actual cash value (ACV), whereas the rental car company may require the “full value” of the vehicle which could be significantly higher than the ACV. Unfortunately, the rental company reserves the right to determine the full value.
· The rental car company may charge for indirect losses, including diminution of value. Diminution of value occurs when a vehicle loses a portion of its value due to accident history and is no longer worth the same as it would be had the accident not occurred.
· The rental car company may also charge a host of administrative fees, including towing, storage, etc. which are likely not covered under your personal auto policy.
· The rental car company will charge a loss of use fee for the number of days a vehicle is being repaired due to an accident and cannot be rented to another client.
So, what should I do?
Signing the auto rental agreement makes you personally responsible for countless fees associated with an accident that lie outside the boundaries of your auto policy. Ultimately, selecting the Loss Damage Waiver covers the vehicle and you for virtually every additional fee that you could be subject to. In our office we often use the example: you could wrap your car around a telephone pole and walk away without a care in the world as long as you purchased the LDW.
Others in a better financial position with less aversion to risk may choose to lean on their personal auto policy and cover any additional fees that may arise in the event of an accident. However, most would be best served purchasing the LDW and saving themselves the headache and additional fees down the road should an accident happen.