Collision damage waiver (CDW) is a type of protection that takes care of your financial responsibility for loss or damage to the rental car you use, as long as you don't break the rental agreement's terms and conditions. While you don't have to pay for the direct damages, the waiver might charge an excess which means you can still be at risk of significant out-of-pocket expenses if things go wrong.
What does it cover?
Collision damage waiver generally covers the following:
The cost of damage to your vehicle and damage to third party property above the excess amount
Accidents where you're not at fault, as long as they believe the third party insurer will pay
Third party injury, paid for through the vehicle registration fee
What doesn't it include?
Common collision damage waiver exclusions include:
Underbody and overhead damage
Tyres, windscreen, headlight and wheel damage
Reckless or deliberate damage
Accidents involving a single vehicle
Breaches of the rental agreement
Driving in prohibited or restricted areas
Unauthorised driver
Water damage
Using the wrong fuel type
Finder survey: Do Australians understand rental car excess cover?
Response
Yes
72%
Somewhat
16%
No
12%
Source: Finder survey by Pure Profile of 1112 Australians, December 2023
Why do I need rental car excess insurance?
Because there are so many exclusions, a collision damage waiver isn't enough if you want comprehensive protection. Rental car excess insurance, on the other hand, can give you that added protection. Essentially, even if you have CDW, the rental company will still charge you an excess amount if the car suffers loss or damage under your care.
Let's say the worst happens and you end up writing off a rental car completely. Instead of paying out the value of the car, you'll have to pay the excess amount agreed in your rental agreement, which can be thousands of dollars. With the right rental car excess insurance, you can reduce this excess to $0 so you have no further out-of-pocket expenses if your rental car is stolen or gets into an accident.
It can also include cover for windscreens, tyres, roof, underbody and more. Car rental companies usually also offer rental car excess insurance but it normally costs a lot. If you want cheap rental car excess insurance, buy it online; cover starts at $2.83 per day.
*Prices are based on a 15-day hire in Australia, as of March 2024. Benefits vary from brand to brand. Always read through the product disclosure statement (PDS) to make sure the product is suitable for you.
What's the difference between CDW and LDW?
Most car rental companies consider collision damage waiver (CDW) and loss damage waiver (LDW) to be the same thing. In most countries, they come packaged together. However, you often need to purchase them separately in the US and Canada.
For the rental companies that separately define CDW and LDW, CDW provides cover if there's damage to your rental car as a result of an accident while LDW is a combination of CDW and theft protection. That means you'll also be covered for car replacement if your rental car is stolen. CDW also usually excludes windscreen, tyres, interior, undercarriage, roof and side mirror repair. If any of these parts are damaged, you'll likely have to pay the full cost of repairs.
LDW/CDW in other countries
While collision damage waiver is included when you use a rental car in Australia, there are several popular holiday destinations where you'll have to pay extra if you want it.
US. Some rental companies in the US will not include collision damage waiver in their initial fees. It's common for you to be offered CDW at the time of rental for an additional daily charge.
New Zealand. You will probably find collision damage waiver as an optional add-on with many car rental companies in New Zealand. It can often cost you an additional $20 per day on top of your initial car rental fee.
UK & Ireland. The majority of UK and Irish car rental companies should include collision or loss damage waiver in their total rental fee.
A loss damage waiver is an optional type of protection that waives your financial responsibility for damage to your rental vehicle. It also covers you for loss, meaning if your rental vehicle is stolen, it will cover you for a car replacement, up to certain limits.
Loss or collision damage waiver does not ordinarily cover third party liability; it only partially covers your rental car.
Gary Ross Hunter is an editor at Finder, specialising in insurance. He’s been writing about life, travel, home, car, pet and health insurance for over 6 years and regularly appears as an insurance expert in publications including The Sydney Morning Herald, The Guardian and news.com.au. Gary holds a Kaplan Tier 2 General Advice General Insurance certification which meets the requirements of ASIC Regulatory Guide 146 (RG146).
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