What to know about renting a vehicle

By HUB SmartCoverage Team on April 12th, 2022

Have you ever wondered if you really need to buy additional auto insurance when you rent a car?

We have the answers.

Buying additional insurance from a rental car company is not mandatory in Canada. Rental cars do come with basic protection, but it’s minimal. Any damage above these limits means you would have to pay out of pocket. That’s why drivers of rentals should ensure they have the protections they need.

What is Rental Car Insurance?

When you go to pick up a rental, you are offered insurance from the rental car company. Much like standard car insurance, this type of coverage protects the vehicle, its passengers, and their belongings along with the passengers of other vehicles and their possessions for covered risks such as collision and theft.

Rental car insurance refers to either:

The type you purchase from the rental car company.

Coverage you have in your own personal policy. This endorsement covers rental expenses if your vehicle is being repaired because of an accident.

However, one expert says what rental car companies are offering is not insurance at all.

“Car rental agencies insure their fleets, so what they’re offering isn’t actually insurance,” wrote Matt Hands, business director of insurance at comparison website Ratehub.ca. “Your money goes into an overall fund, so if you do pay for the different coverage options, it means they can’t pursue you for any damages.”

Where to Get Rental Car Insurance:

The first thing to do is to check with your insurer. They will be able to tell you what type of coverage – if any - you have with your personal policy. Rental insurance can be purchased from:

  1. The Rental Car Company: Offered when you pick up your vehicle. It covers you for some damage but with exclusions.
  2. Credit Card: There may be protection through your credit card if you use it to rent the vehicle. Costs vary depending on the card type and provider. Third-party liability, however, is not covered, according to the consumer website CreditcardGenius.ca. Rental car insurance obtained by purchasing travel insurance through a credit card often comes with an upper limit, so it pays to check what those limits are.
  3. Your Auto Insurer: Most offer options to cover damages to vehicles you don’t own. This endorsement is known as Legal Liability for Damage to Non-Owned Vehicles or an OPCF 27.

Also, some trip cancellation, travel health, and medical evacuation insurance policies allow rental car coverage to be included as an add-on, according to Isure.ca. This often covers loss or damage to the vehicle. Some policies may cover costs associated with towing, salvage, fire department charges, and reasonable loss of use.

It’s important to know what coverage you already have before opting to pay for rental car insurance.

Types of Rental Car Insurance:

There are the four types of rental car insurance:

1. Collision Damage Waiver (CDW)

Also called loss damage waiver (LDW), this protects the rental vehicle and nothing else. It covers the cost if anything happens to the rental car such as fire, theft, or accident.

According to insurance brokerage Isure.ca, rental car companies have also started charging additional fees for:

  • Lost revenue while the car is being repaired
  • Administrative fees for handling the repair
  • Towing costs
  • Depreciation of the resale value of the vehicle after an accident

The Collision Damage Waiver is not an insurance policy. You are paying the company to forfeit the right to go after you for damages.

Tip: This insurance is required, but many personal auto policies or credit cards cover this. Know what coverage you already have before you sign.

2. Liability insurance (LI)

Liability insurance protects the driver if they are at fault in a collision and cause damage or injury to other people or property. This covers costs associated with the vehicle or medical benefits to those who are injured. It’s required unless your personal insurance has $1-$2 million in liability and an OPCF 27 – liability for damage to non-owned automobiles (rentals or when you borrow a vehicle).

Tip: An OPCF 27 protects you in Canada and the U.S. Other provinces offer a similar endorsement – QEF27 in Québec and SEF27 in private insurer provinces such as Alberta and Atlantic Canada. If the driver’s auto insurance policy includes these endorsements, then purchasing additional coverage from a car rental company becomes unnecessary. If you travel frequently, it costs less to add this to your policy than pay each time you rent a vehicle.

3. Personal accident insurance (PAI)

This provides accidental death and dismemberment coverage to anyone riding in the rental vehicle at the time of the accident. The benefits package varies between rental car agencies, but typically the driver is covered up to $100,000 while the passengers are eligible for up to $10,000 in the payout.

Tip: It is not required but can be risky not to have. Those who have a life insurance or group health benefits plan with short- or long-term disability coverage can choose to waive personal accident insurance.

4. Personal effects coverage (PEC)

This covers the driver’s personal belongings in the event they are lost, damaged, or stolen while inside the rental car. Coverage often has a stated limit and will need a deductible paid before a claim is paid out. This coverage is not required if you have home insurance.

Tip: Homeowners, condominium, and renters insurance policies provide contents coverage, which extends to personal belongings lost or damaged outside the home, including rental cars. Those who already have home insurance can opt not to take out this coverage. If you don’t have home insurance, you may want to pay for this if you don’t want to lose something that costs $500 or less.

How much does rental car insurance cost?

According to Ratehub.ca each type of coverage at the following price range:

CDW/LDW: $9 to $30 per day

LI: $15 to $30 per day

PAI: $7 to $10 per day

PEC: $2 to $5 per day

Based on these, rental car insurance premiums could range between $33 and $85 per day if the driver opts to buy all available coverages. That’s why it’s important to understand the coverage you already have, and fill gaps as needed.

When is taking out rental car insurance a good idea?

There are some situations, however, where purchasing rental car insurance makes sense. According to Ratehub.ca, here are some examples:

  • The driver does not own an auto insurance policy
  • The driver’s credit card does not provide rental car coverage
  • The driver’s car insurance policy does not have the right endorsement that allows it to be transferable to a rental vehicle
  • The vehicle renter is considered high-risk and cannot afford the risk of another claim
  • The driver is travelling for business, which means insurance should be paid by the employer if they are the ones who rented the vehicle
  • The driver is renting a sports car, truck, or luxury or specialized vehicle
  • The driver’s auto insurance policy covers only the minimum
  • The driver is travelling outside North America, which is no longer covered by standard car insurance

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