Rental car insurance is not something you spend too much time thinking about. That is, until one day, you are at a rental office being told that it is critical to have it. You’re stuck thinking “Do I actually need to purchase rental car insurance?” But, what type of insurance coverage do rental companies offer? Wouldn’t your credit card or personal insurance policy already offer you coverage? Let’s look at what type of coverage you need when renting a car, and explore the different types of coverage you may already have at your disposal.
Is rental car insurance mandatory?
It isn’t a requirement for Canadian drivers to purchase additional insurance from the rental car company when renting a car. However, you do need to have ample insurance that will cover you in case of an accident. In all parts of Canada, third-party liability coverage is a requirement in order to operate a vehicle. Because of this, the legal minimum is often included with your rental car, but always double-check to be sure.
Car rental insurance basics
The surprising truth is that in many (if not most) cases, you likely already have rental car insurance through one or more of these options:
1. Your personal car insurance
Most Ontario auto insurance companies offer you the option of additional coverage for liability for damage to automobiles that you don’t own. This coverage comes in the form of an “add-on” or endorsement known as “Legal Liability for Damage to Non-Owned Automobiles.” It is also known as an “OPCF 27”.
If your auto insurance policy includes the OPCF 27, you already have coverage for damage to a vehicle that you don’t own. This includes a rental automobile. However, it is only valid for driving in Canada and the US. If your auto insurance policy does not include the OPCF 27, you may want to consider adding it. The yearly cost of adding it to your policy is usually quite reasonable. This is an economical alternative to purchasing a collision damage waiver from an auto rental company if you and your family routinely rent cars on holidays.
*Important note: The car rental agreement must be in your name if you are the insured person on the auto policy. Also, be aware not to confuse the OPCF 27 with the OPCF 20 (Loss of Use endorsement). The OPCF 20 will provide a rental car if yours is in the shop for repairs as a result of collision or vandalism.
To be certain, you should read your insurance policy in detail or call your isure broker and ask any questions you may have. We’ll be happy to help you figure out what you do (and don’t) have coverage for when renting vehicles to help you avoid car rental insurance, if possible.
2. Complimentary coverage that comes with your credit card
Your credit card may already provide collision damage on vehicles that you rent. To be eligible for this coverage, you will likely need to charge the full amount of the rental on your credit card AND decline the collision damage waiver from the car rental company. According to creditcardgenius.ca, no credit card offers liability insurance for rental cars. Also, travel insurance through a credit card is going to have an upper limit, so be careful to check what those limits are.
A minimum level of third-party liability also comes with all rental cars in Canada, by law. The minimum amount starts at $200,000 and may be up to $1,000,000, depending on the province and/or car rental company. This minimum coverage is already factored into your car rental and does not require an additional fee.
Remember, you may already have coverage through your credit card. If you are, you can save up to $20 or $30 per day on your car rental!
3. Coverage through your travel insurance
There are different types of travel insurance that you may consider:
- Trip cancellation or travel disruption insurance
- Travel health insurance
- Medical evacuation insurance
These will cover different situations and may give you financial peace of mind, as well as allow for safe and healthy travel. Rental car insurance may be optional as an add-on to the policy. This will usually cover your rental vehicle against any loss or damage. Sometimes, it will also cover costs such as towing, salvage, fire department charges, and reasonable loss of use.
Of course, to be certain of what is covered or not, you should read your travel insurance package thoroughly or call your provider if you’re not sure. If you do not have adequate coverage, you should consider purchasing additional insurance from the rental company.
Car rental insurance options
When speaking with the customer service representative at the rental office, you will likely be told about four options for car rental insurance. Each type of coverage is there to protect you in different ways:
1. Loss Damage Waiver (LDW) / Collision Damage Waiver (CDW)
This waiver covers the car you’re renting itself and nothing else. Having this coverage means that if anything happens to the car (such as fire, theft, or accident,) the costs will be paid for. This is similar to comprehensive and collision insurance in regular auto policies but for rental vehicles.
Rental car companies are now charging additional fees for:
- Lost revenue while the car is in for repairs
- Administrative fees for handling the repair
- Towing costs
- Depreciation on the resale value of the vehicle since it’s been in an accident
The expensive CDW & LDW policy from the rental car company covers these additional fees, but other coverage you have may not, so you’ll need to check.
Car rental insurance sold as Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW) does not come cheap. At up to $30 per day, you can easily be on the hook for approximately $500 for a two-week rental, which is often more expensive than the rental fee itself. You should also be aware that it often comes with exclusions. For example, it may provide no protection while you drive on unpaved roads. It’s important to note that the protection you get also varies from company to company. Auto rental companies charge a daily rate on top of the rental charge for the CDW. Though you can buy this directly from the auto rental company, you should be aware that there are alternatives.
2. Personal Accident Insurance (PAI)
Provides accidental death and dismemberment coverage to the driver and any passengers in the car at the time of the accident. Rental car agencies each have a different benefits package. But typically, the driver is covered up to $100,000 and passengers may receive up to $10,000.
Even if you have liability insurance and you get in an accident, nobody is paying your medical bills. Or, a lump sum payment may be offered if a death occurs. That’s where PAI comes in. It covers medical costs for you, your passengers and sometimes, lump sum accidental death and dismemberment (AD&D) payouts. Though it is not a requirement, you should have it. It’s not the same as third-party liability insurance because it covers your medical bills and pays out a lump sum if there is a death.
3. Personal Effects Coverage (PEC)
Personal effects coverage pays for your personal property if it’s lost, damaged, or stolen while you’re travelling with your rental vehicle. It’s usually bundled as an extra feature of PAI and isn’t something you pay for separately. However, there is a stated limit, and will often need a deductible paid before a claim is paid out. Typically, the coverage is $500 with a $25 deductible per person, but there are limits as to how many passengers can make a claim.
This optional insurance covers the personal property in your rented vehicle. your home insurance provides enough coverage, you do not need to add personal effects coverage to your rental car insurance.
4. Liability Coverage (LI)
Liability Insurance covers you for damage and injury you may inflict on other people and their property while driving a rental car. It is generally recommended that you increase your coverage to $1,000,000 or $2,000,000 because if you get into an accident and cause serious harm or death, the minimum coverage will likely be inadequate.
You may also encounter Supplemental Liability Insurance (SLI), which is coverage above and beyond the minimum amount rental companies are required to provide. Be sure to ask what those minimums are because chances are you don’t need anything supplemental.
In short, rental car insurance coverage is available to protect passengers, the vehicle, personal belongings, and you. It will also cover damages from another person’s property, vehicle, or injuries.
How to save money on a car rental
Rental insurance can be quite costly. To prevent yourself from duplicate charges, here are some tips to help save money or even avoid rental car insurance altogether:
- Do your homework: Shop and browse different agencies and websites to compare prices.
- Benefits of being loyal: Many rental car agencies have loyalty programs that allow you to earn points and redeem them.
- Savvy shopper: Check for coupons, discounts, or free days at local rental companies.
- Plan ahead: Avoid booking your rental last minute at the airport because you will pay a premium and have less selection.
- Cheap & cheerful: Economy cars will be the more affordable option for your trip.
Be sure to talk to your isure broker to understand what level of coverage you have before you visit a rental car agency so that you don’t feel pressure to buy unnecessary coverage!
