Loss Damage Waiver Insurance – to Purchase or Not?

Mark StraussAuto Insurance, Individual | Personal Insurance

Your auto insurance policy will pay for bodily injury and property damage for damage to the rental car and/or other physical damage you cause to other vehicles. In case of a collision you would pay your collision deductible, the insurance company would then pick up the remainder of the repair costs. Unfortunately there is no additional coverage on your personal auto policy for ‘Loss Damage’, this is when a rental car company will charge you for the loss of rental income while the rental car is being repaired from an accident.

I hate the consideration of paying for the loss damage waiver insurance when renting a car as the cost of the benefit is typically equivalent to the rental car itself. The ‘do I’ or ‘don’t I’ decision on picking up the protection is a pure risk management decision. I would apply the following rules of risk management to help guide your decision based on the answers to the questions that are asked below.

  • Don’t risk more than you can afford to lose. This is a measure of severity. If the maximum possible loss could not be paid out of your existing finances without necessitating borrowing or if such a loss might lead to financial hardship then the insurance must be considered.
  • Consider the odds. What is the probability that a loss will occur?
  • Don’t risk a lot for a little. After weighing the cost of insurance compared to the potential out-of-pocket expense. Don’t self-insure a loss that could be transferred to the insurance carrier for a known, relatively small amount of premium.

Apply the above rules of risk management and answer these questions on whether purchasing the loss damage waiver insurance makes sense:

  1. Are you familiar with your destination and have you been there and driven there before? The more familiar you are with a location the more you will be aware of the road conditions and hazards that might exist.
  2. Will your driving be in the city, suburbs or in the rural country side? The more cars that are on the road in the area where you are driving the more there is a possibility that a loss might occur.
  3. How long will you have the rental car in your possession? The more time you have the rental vehicle in your possession the more probability a loss might occur.
  4. How many miles per day will you approximately be driving during the rental period? The more time on the road the more probability a loss might occur.
  5. Where will the vehicle be parked when not being driven? Street parking, paid lot, driveway, etc.
  6. What kind of loss damage waiver benefit does your credit card provide you when you rent a car? Most credit cards provide a small sum like $1,500,sometimes they do offer more. I suggest referring to the benefit summary of the credit card for details.

Personally if I am familiar with a destination/location and not driving that much I would skip the purchasing the loss damage waiver insurance. If it’s a place I haven’t been before and going to be doing a bit more driving I would seriously consider it. It’s always such a gamble!