The Chase Freedom® and Chase Freedom Unlimited® both offer insurance coverage for the financial cost of damage or theft to a rented vehicle. However, coverage through the collision damage waiver (CDW) is secondary insurance, kicking in only after other forms of insurance (like your personal car insurance).

For this reason, those who use rental cars more often may be better off with the Chase Sapphire Preferred® card, which offers its cardholders primary rental car insurance. 

How the rental-car collision damage waiver works

The CDWs from Chase Freedom® and Chase Freedom Unlimited® provide reimbursement for damage resulting from collision or theft up to the cash value of a vehicle you rent with the card. But note that this benefit pays out only after other forms of insurance do.

The benefits guide states, "Auto rental CDW will not pay for theft or damage reimbursable by your own insurer, employer, employer's insurance, or any other valid and collectible reimbursement."

That means the CDW from Chase Freedom® and Chase Freedom Unlimited® is secondary insurance, so if you have your own car insurance, the protection the card provides will cover only what your insurance doesn't. In most cases, the benefit will cover your deductible, or perhaps the money you have to pay out of pocket when making a claim to your existing car insurance policy.

Other Chase credit cards provide primary insurance, which steps in before your personal car insurance when you make a claim. The Chase Sapphire Preferred® is one such card, though unlike the Chase Freedom® and Chase Freedom Unlimited®, it carries an annual fee of $95, which is waived only in the first year.

Two hands, one holding a dollar bill, and one holding a credit card.

When it comes to rental cars, paying by credit card has its advantages. Image source: Getty Images.

How to get this benefit

You receive a CDW from the Chase Freedom® or Chase Freedom Unlimited® when you use the card to pay for the entirety of the car-rental transaction and decline similar coverage from the car-rental company.

The benefits guide explains in a two-step process.

Here's what you need to do:

  1. Initiate and complete the entire rental transaction using your card that is eligible for the benefit.
  2. Decline the rental company's collision damage waiver or similar provision if it is offered to you. The company may refer to the collision damage waiver as CDW or LDW [loss damage waiver] in their contract or when speaking with you. If you accept the collision damage waiver offered by the rental company, you will not be eligible for auto eental CDW.

What's covered?

The CDW reimburses cardholders for covered losses when the vehicle rental period doesn't cover periods longer than 31 days and the rental is within your country of residence.

According to the benefits guide, covered losses are:

  • Physical damage and/or theft of the covered rental vehicle.
  • Valid loss-of-use charges the rental company assesses while the damaged vehicle is being repaired and is unavailable for use, as substantiated in the company's fleet utilization log.
  • Reasonable and customary towing charges related to a covered loss to take the vehicle to the nearest qualified repair facility.

Loss-of-use coverage is very important, as few people realize that they''re responsible for paying to rent the car while it's in service for repairs. For example, if a collision results in damage that takes a week to fix, the renter has to pay for that week it was out of use. Credit card rental-car insurance can be very valuable here.

Note that the coverage does not, in any way, cover any liability or damage to other cars. It also doesn't cover any bodily harm or other liability. The coverage is solely for the cost of repairing or replacing a damaged or stolen vehicle you rented. On the bright side, state laws typically require that car-rental companies provide liability and bodily-injury coverage for people who rent cars. 

Some vehicles aren't covered

For obvious reasons, most credit cards, including Chase Freedom® cards, don't cover automobiles that are especially expensive. Most luxury cars, larger vehicles (vans that can transport more than eight people), and antique vehicles are excluded from the CDW. Trucks are also excluded from coverage.

The benefits guide explains:

Excluded worldwide are: expensive, exotic, and antique automobiles; certain vans; vehicles that have an open cargo bed; trucks; motorcycles, mopeds, and motorbikes; limousines; and recreational vehicles.

Examples of excluded expensive or exotic automobiles are these brands: Aston Martin, Bentley, Bricklin, Daimler, DeLorean, Excalibur, Ferrari, Jensen, Lamborghini, Lotus, Maserati, Porsche, and Rolls Royce. However, selected models of BMW, Mercedes-Benz, Cadillac, and Lincoln are covered.

An antique automobile is defined as any vehicle over twenty (20) years old or any vehicle that has not been manufactured for ten (10) years or more.

This benefit is provided only for those vans manufactured and designed to transport a maximum of eight (8) people and which are used exclusively to transport people.

Who gets covered?

When you use a Chase Freedom® or Chase Freedom Unlimited® to pay for a rental car, you are covered as the primary renter. Any additional drivers that the rental contract permits to operate the card are also covered.

Your card's CDW will cover other people only if you add them to the rental contract. Note that car-rental companies usually charge a fee for additional drivers, often $5 or $10 per day, per additional driver.

How to think about the collision damage waiver

A CDW is really a protection for the financial cost of a damaged or stolen rental car, and little more. If you return a car with damage, the card's coverage will kick in after other forms of insurance, including your personal car insurance. For that reason, secondary rental car insurance is most valuable for people who have a high deductible on their existing car-insurance policy.

Frequent car renters would be better off with a credit card that provides primary rental-car insurance, since it steps in before your personal auto-insurance policy. Cardholders who have primary rental-car insurance can avoid a claim, and thus higher premiums on their car insurance, because the card, rather than other forms of insurance, covers the claim. That's not the case with the secondary insurance most credit cards provide, requiring you to make a claim on your personal car insurance before it pays out on any excess expenses.

For cards with better primary car insurance policies, see the Chase Sapphire Preferred®, which offers primary car insurance and has the lowest annual fee of any card that offers the benefit. On the downside, the only cards that offer primary insurance carry an annual fee, but for frequent renters, the annual fee more than pays for itself, given that rental-car companies charge as much as $10 or $15 a day for CDWs. Therefore, a $95 annual fee on a card with primary coverage pays for itself for people who rent cars for at least one week each year.

 

Jordan Wathen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.