Choosing The Right Rental Car Insurance

What is Rental Car Insurance?

Rental car insurance is a product offered by the rental company to provide various protections when you rent a vehicle.

Rental insurance may include coverage for you and your passengers, the vehicle, and your personal belongings.

Canadians aren’t required to buy this coverage, but they need at least the legal minimum required third-party liability coverage for their region.

It covers property damage or loss and bodily injury to third parties.

All provinces and territories except Quebec and Nova Scotia require a minimum of $200,000 in coverage.

Quebec’s minimum is $50,000, and Nova Scotia’s is $500,000.

The rental company will also have their own third-party liability coverage on their vehicles.

However, your insurance is the primary coverage.

Their insurance only kicks in when and if your primary policy has been exhausted.

Does Your Auto Insurance Cover You?

The answer to this question isn’t a straightforward yes or no.

Each auto insurance policy is specific and unique so it’s best to consult your policy or insurer to confirm.

You and a friend or family member may have auto insurance policies from the same companies but different coverages, so it’s not a one size fits all.

If your policy does extend to rental cars, you will pay a deductible if you file a claim.

However, your policy won’t necessarily cover all costs.

Some such as towing, administrative, or “loss of use” fees are often excluded.

The rental car company may levy loss of use fees to compensate for their loss of income when they cannot rent a vehicle after an incident.

Some rental companies also charge depreciation costs if a vehicle has been in an accident.

Other Coverage Sources

If your existing auto insurance policy does not offer sufficient protection, you may access additional coverage through a credit card.

Research this beforehand.

Otherwise, you can pay dearly for any insurance gaps.

We discuss some of the possible shortcomings later in this article.

Rental cars in parking lot

Types of Coverage

Rental car companies offer the following four basic coverages within their rental car insurance policies:

1. Third-Party Liability Coverage

If you have an existing auto insurance policy, you have some third-party liability coverage.

Your policy may provide protection if you cause damage or injury to others or their property while you’re driving a rental car.

If you don’t have an existing auto policy, you must buy minimum liability coverage for your province or territory.

It is legally required to operate a vehicle in Canada.

It is important to note that liability claims for damage above the minimums are capped in all regions except Quebec and Nova Scotia.

These caps are very low (either $10,000 or $20,000).

If you cause an accident that leads to costly expenses, minimum liability coverage may not offer sufficient protection, and you could pay out of pocket for any excess.

However, you may be able to buy supplemental liability insurance through the rental car company for a reasonable fee.

2. Loss Damage Waiver (LDW) or Collision Damage Waiver (CDW)

A Loss Damage Waiver clears you of responsibility for damages to the vehicle.

It will not apply if an incident involves personal injury or other property damage.

Coverage includes total loss, perils such as fire and hail, accident damage, vandalism, and theft.

A Collision Damage Waiver does not include theft.

These coverages offer similar protections to collision and comprehensive, but they’re tailored to rental vehicles.

Many people decline this coverage because it is usually very costly.

However, these policies may include coverage for fees that your personal auto policy does not have.

Towing, administrative, depreciation, and loss of use fees are often included in these policies.

3. Personal Accident Insurance (PAI)

Personal accident insurance is meant to pay medical costs for you and sometimes your passengers.

Some policies also include accidental death and dismemberment.

If you have supplemental medical insurance or medical coverage under your auto policy, you may not need this coverage.

If you don’t have protection, one of your credit cards may include these protections.

4. Personal Effects Coverage (PEC)

Personal effects coverage protects your belongings in the rented vehicle.

You may be able to file a claim for stolen, lost, or damaged items.

Your auto insurance or one of your credit cards may offer similar coverage, so it may not be necessary.

Does My Credit Card Cover Rental Car Insurance?

Not all credit card companies offer rental car insurance.

If yours does, it may provide partial coverage.

Credit cards do not provide third-party liability coverage for rental vehicles.

You must have liability insurance from another source.

Generally, your primary personal auto insurance is your best bet for third-party liability coverage and sometimes accident benefits too.

Credit card car rental insurance also usually includes many exceptions.

Recently, a British Columbia woman’s claim for hail damage wasn’t covered because she rented a pickup truck, not a car.

Luxury cars, recreational vehicles, motorcycles, and trailers are other standard exceptions.

If you travel outside of your region, your insurance policy may not apply either. 

Additionally, most credit card policies only apply to short-term rentals of 15 days or less.

Some allow longer rentals if you pay for more coverage.

If you drive on unpaved roads, go off-road, leave a car running and unattended, or drive under the influence, it can void your insurance contract.

Finally, car rental insurance provided through credit cards is secondary coverage.

It only pays whatever your primary policy does not cover.

Coordinating a claim between companies can also lead to slow reimbursement.

Purchasing From Your Car Insurance Provider vs the Rental Car Company

There’s no clear answer to which is best.

It depends on your personal situation and your access to existing insurance products.

Here are the pros and cons of each to help you make an informed decision.

Car Insurance Provider

Pros
  • Your primary insurer can offer expertise – they understand your existing auto policy
  • You may be able to increase or add coverage and still save money overall
  • Usually, a more straightforward and quicker claims process
Cons
  • May not cover towing, administration, depreciation, and loss-of-use fees
  • May not cover business travel
  • May not provide coverage if you travel to another region such as Mexico or the U.S.

Rental Car Insurance

Pros
  • No need to check existing coverages – can access policy easily
  • Can buy coverage for business travel
  • Fees for towing, administration, loss of use, and depreciation often included
Cons
  • May duplicate coverage you already pay for
  • The rental agent may try to sell you coverages you don’t need
  • Often expensive
  • May include many exceptions
  • Slow claims process

Don’t Forget!

Your personal policy may not cover additional fees the rental company may levy against you if you file a claim.

Frequently Asked Questions

  • Is it necessary to buy rental car insurance?
  • Can I rent a car without car insurance?

Charlene Royston has written extensively for the private, public, and non-profit sectors for over ten years. Her experience working with a trust company led to a special interest in personal finance, including mortgages, investments, and retirement options. By simplifying the complex, she hopes to empower others to make more informed decisions.