As an insurance broker I am often asked by clients if they should
buy the loss damage waiver (LDW) when they rent a car. My response is a lawyerly “that depends.” I am not a lawyer, but I have worked with auto insurance companies and car rental companies for more than 30 years.
Unlike many travel writers, I do not consider LDW a rip-off. Just one ride around the salvage lot at a major car rental facility, like the one at the Baltimore-Washington International Airport (BWI) consolidated rental car facility, and I couldn’t help but wonder how many people actually had the coverage they thought they had? Did many of the renters buy the LDW offered to them, or did they tell the rental sales agent, “My credit card covers me”?
Judging by the amount of damage to the vehicles I saw at BWI, typical of any large urban car rental salvage facility, my guess is there was also damage to someone else’s property. Is this coverage available under a credit card? Highly unlikely.
Know the Difference in Coverage
When my team trains rental sales agents to correctly offer insurance, waivers and services, we spend a lot of time talking about the differences between insurance and a waiver. We also talk about the difference between liability (third-party coverage) and physical damage to the vehicle (first-party coverage).
Is credit card coverage a complete waiver of financial responsibility for whatever happens to the car no matter who or what caused it? Will there be a deductible? Is the loss of use or diminished value covered?
A quick look at the travel blogosphere will show the many instances where a rental car customer was left after an accident with a charge for the loss of use and diminished value of a rental car company’s vehicle. This can add up to thousands of dollars.
In an age when airlines make almost all their profit through the charges of ancillary things like baggage, drinks, pillow, blankets and leg room, shouldn’t the car rental operator be able to get compensation for the loss of its property and still generate revenue from the damaged vehicle?
Many car rental customers depend on their credit cards to cover any losses sustained while driving the rental car. Visa, MasterCard and American Express are the dominant players in the market.
Visa cards are generally regarded as offering pretty broad coverage for damage to the rented vehicle. Some cards are better than others, and many claim to cover some loss of use if the car rental company will provide logs showing that every available car was on rent and there was an actual loss of revenue.
The problem is most car rental companies consider this proprietary information and will not release the information. That leaves the renter financially responsible.
Other things to know with Visa:
- Visa Signature cards provide secondary coverage at no additional cost to the cardholder.
- A cardholder must decline the loss damage waiver.
- Visa usually covers loss of use if a log is submitted by the rental company.
- Some Visa cards limit coverage to 15 rental days.
- Visa covers up to the actual cash value of the vehicle — no diminished value is included in coverage.
MasterCard does not offer damage coverage with all its cards. A surprising number do not have coverage at all.
Other things to know with MasterCard:
- Most World or Elite MasterCards include secondary coverage.
- Platinum MasterCard and above includes coverage.
- MasterCard coverage does not include loss of use or theft of an unlocked vehicle.
The business traveler has relied upon American Express for most travel expenses, but often the cardholder thinks the basic coverage included is for liability as well as damage to the rented vehicle. American Express, like most Visa cards and MasterCards that offer the coverage, is secondary to any other valid and collectible insurance that covers the renter.
When customers use an American Express Business card and there is a loss, they will be asked to provide copies of all business auto policies, as well as personal auto policies. Was the rental business or leisure? A business auto policy or personal auto policy?
Other things to know with American Express:
- Some vehicles are not covered based on value or type, such as a luxury SUV exceeding an MSRP of $50,000, and are excluded from coverage for basic American Express cardholders.
- Younger renters just beginning their careers often carry the student American Express cards they were offered as college students. These cards do not provide any loss damage coverage.
- American Express now offers a “premium” coverage, in which renters enroll their American Express card and pay the rental with the card. It is broader coverage than the basic plan, covering a limited amount of property damage, but still does not cover any bodily injury liability. Cardholders are charged a fee for the coverage every time they rent a vehicle and use the card, but the coverage is primary.
A Customer’s Expectations of Coverage
Who is the customer that relies on the credit card to cover the loss damage to the rental vehicle? Usually it is the savvy business traveler who relies on a business Visa, MasterCard or American Express. Oftentimes these customers are not aware of limitations on vehicle type or values not covered.
Senior citizens who may not own a car or have auto insurance, and who carry only a basic credit or debit card, are risking being held liable for damages to the rental. As this demographic grows and baby boomers age, it’s important that your frontline provides the correct information.
As our industry continues to become more automated and kiosk rentals grow, would it not make sense to be able to offer a damage waiver on a risk-based profile? If a renter with no accidents or tickets selected damage waiver at a price based on risk factors, would this not increase sales? Technology exists to be able to do this.
Conversely, if a renter who has three accidents on record wants to buy LDW, shouldn’t the charge be higher? Could the kiosk program read the credit card and send a message about the type of coverage provided on the credit card and offer a price for the LDW?
As our industry follows the trends of automation there will be less opportunity to interact with rental sales agents and decisions will be made at point of sale at a kiosk terminal. Smartphones will be the choice of renters when booking a car.
While technology and coverage on credit cards is a moving target, one fact will not change. Renters will have accidents, vandalism and theft of the cars they drive. Many will get a surprise when they learn their credit card does not meet their expectations of coverage.
5 Things to Remember
- A loss damage waiver is not sold as deductible insurance because it is a waiver, or partial waiver, of financial responsibility that can include loss or damage to the rented vehicle, administrative costs, loss of use, towing and storage.
- Anyone renting a full-size van or luxury SUV is probably not covered by any credit card.
- International renters are not covered in the U.S. and should buy a loss damage waiver.
- According to Progressive Insurance Co., only 26% of consumers actually called their insurance agent or looked at their credit card coverage to see if they are covered for the loss damage waiver.
- Credit card coverage changes all the time.
About the Author
Leslie Saunders is an airport certified insurance broker providing insurance products and training services for car rental companies and other travel industry organizations. She can be contacted at firstname.lastname@example.org or by calling (818) 949-8964 ext. 301.