By Herb Weisbaum ConsumerMan contributor
updated 8/6/2009 8:14:17 PM ET 2009-08-07T00:14:17

If you’ve ever rented a car, you know the pitch. “Would you like the collision damage waiver to protect you in case of an accident?” the sales agent asks.

My insurance agent calls it “hassle insurance” because he knows what a hassle it can be when a rental car is damaged or stolen — even if it’s not your fault.

The truth is, CDW, which can be as much as $20 a day in some states, is not insurance. It’s an agreement between you and the rental car company that if the car is damaged or stolen you won’t be held liable.

For as long as I can remember consumer and travel experts have advised us not to buy the CDW. They say it’s too expensive and unnecessary.

Consumer Reports also advises its readers to “resist the pitch,” because their personal insurance policy probably covers damage to a rental car. The editors also recommend paying with a premium credit card that provides accident coverage.

These consumer groups are all well intentioned. But I believe they are stuck in park while the rental car industry has changed dramatically. It’s time to question this advice and take a fresh look at the subject.

The new reality
“Sometimes it just makes sense to buy the CDW,” says Carolyn Gorman, president of the Insurance Information Institute. “Things certainly have changed and the old rules really need to be looked at again. People should know that if they turn down this extra coverage they could be sorry later.”

That’s because rental car companies hit you up for more than the cost of repairing the vehicle. Chances are the contract you sign (but probably don’t read) obligates you to pay for all the revenue lost while the damaged vehicle is out of service.

You may also be charged for “diminution of value,” the money the car company estimates it will lose (because of the accident) when it sells the vehicle.

Remember, the rental car company has your credit card number, so they can just add these charges to your bill.

“But,” you say, “I checked and my insurance company covers rental cars.” OK, let’s assume you file a claim. There’s still the deductible to deal with.

That’s not a problem if you put the rental on your credit card because most credit cards will pick up the deductible.

But if you do file, your premiums could go up for several years. No one wants that to happen. And in fact, your policy may not cover all the charges billed by the rental car company.

So why not skip your own insurance policy and just file a claim with your credit card company?

Here’s the rub there. Most credit card company’s collision damage waivers are secondary coverage. That means you must file a claim with your insurance company before they’ll pay a dime.

Stuck again, unless you have one of the few cards that offer primary coverage – they’ll pay the rental car company without the need to file a claim with your own insurance.

Anna Aurillo is an environmental advocate in Washington, D.C. A number of years ago she rented a car in Utah to drive from the airport to a campsite.

Along the way, a deer hit the car, damaged the side mirror and dented the door.

The repairs cost $800, but then the rental company told her it took a month to fix the damage, something Aurillo had no way to verify or dispute. They charged her nearly a thousand dollars to cover the lost revenue for those 30 days.

“I got nailed two ways,” she says, “by the deer and by the rental car company.”

The rental car industry argues this is exactly why you need to purchase the Collision Damage Waiver.

“An informed consumer will realize the value and benefit of CDW,” says Sean Busking with the American Car Rental Association. Busking tells me when he worked behind the rental counter, he constantly dealt with customers who had an accident and regretted not buying the CDW.

There is another option
For more than 25 years, Ed Perkins, now a contributing editor at Smarter Travel, advised against buying the CDW. He recently changed his mind.

“I no longer blankly say use your credit card and forget about the CDW,” Perkins tells me. “To my way of thinking now, your best approach is to use a credit card with primary coverage. That way, you don’t have to use your insurance at all.”

Some Visa and MasterCard accounts provide primary rental car coverage.

Perkins recommends Diners Club cards because they all have free primary collision damage waiver coverage of up to $75,000 per incident. This is insurance coverage for rentals of 45 consecutive days or less. It will pay for physical damage or theft of the vehicle, towing charges and reasonable loss of use charges.

If you have an American Express card you can buy a special package for under $25 per rental (up to 42 consecutive days) that converts the card’s secondary rental car coverage into primary insurance coverage of up to $100,000. And there’s no deductible.

My two cents
The Collision Damage Waiver, often sold through high-pressure scare tactics at the rental counter – is grossly over-priced. In some cases, the CDW is higher than the daily rental rate. That’s just crazy.

I believe rental car companies could provide this protection at a much lower cost. But it’s now become a major profit center for them. The new business model is to charge less for the car and make your money from people who buy damage and liability protection.

I don’t want to hassle with a rental car company when I’m on vacation. But I’m not about to be taken for a ride by an industry that believes price-gouging is the way to make a profit.

I don’t travel enough to pay the $300 annual fee for a Diners Club card. So I will either get a new credit card with primary coverage or add primary protection to my American Express card.

Maybe it’s time you reconsider what you’ll do the next time you rent.

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