Rental car insurance
Everything Canadians need to know about car rental insurance to help you make an informed and confident financial decision.
Matt Hands, Business Director, Insurance
Rental car insurance has 4 options, including:
- Loss damage waiver (LDW) / Collision damage waiver (CDW)
- Personal effects coverage (PEC)
- Personal accident insurance (PAI)
- Liability (LI)
Each type of coverage is there to protect you in different ways.
PAI, for instance, covers you and your passengers.
LDW and CDW protect the rented vehicle itself, and PEC covers your personal belongings.
Any injuries others (third-parties) suffer as a result of your actions has coverage through LI. Liability also covers damages to another person’s property or vehicle as a result of a collision.
How car insurance agencies insure their cars
Car rental agencies insure their fleets, so what they’re offering isn’t actually insurance, 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.
Rental car insurance endorsements
However, as we'll break down below, you may not need these coverages if you have a car insurance policy with the OPCF27 endorsement (QEF27 in Quebec, SEF27 in other private insurer provinces like Alberta and Atlantic Canada).
Don't confuse the 27 endorsement (liability for damage to non-owned automobile(s)) with the 20 endorsement (loss of use coverage. OPCF20 (QFE20/SEF20) will provide a rental car if yours is in the repair shop due to a risk becoming a reality (like a collision or vandalism).
Rental car insurance mistake
Don't assume you have coverage, call your insurer or credit card provider to ensure protection. In August 2021, a woman rented a truck with her credit card that had car rental insurance on it. However, that credit card did not cover truck rentals and she was left with a $4,424.50 bill.
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Rental car insurance is offered to you at the counter when you pick up your vehicle. Unfortunately, it can create undo pressure on you to make a quick decision.Knowing how you might be protected ahead of time is smart, so good on you for being here.
If you know the rules, you can make a smart, informed, and financially savvy decision.
Here is an overview of the available rental car insurance coverages:
Loss Damage Waiver & Collision Damage Waiver
Protects you from charges related to theft and collision of the rental car. On your insurance policy, it's called collision and comprehensive. CDW or LDW is not an insurance policy, by signing the agreement, you’re paying the car rental agency to waive its right to pursue you for damages or losses.
Cost: $9 to $30 per day
Required: No, it's not required but ensure you have coverage elsewhere before declining coverage. For instance, many credit cards insure the rental car for CDW and LDW, but read your card's fine print. Your auto insurance policy may also cover it if you have collision and comprehensive insurance (and OPCF/QEF/SEF 27 endorsement).
Personal Accident Insurance or 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 receive $10,000.
Cost: $7-$10 per day
Required: No, but you're leaving yourself exposed. Buy it if you don't have your own auto insurance policy with an endorsement to drive rental vehicles (OPCF27).
Liability Insurance or LI
Protects you from being held liable in a collision. If you are at fault in a collision and injure another person, or damage someone else's property like their vehicle, you will want to have liability insurance. Liability will cover the costs associated from the crash including the vehicle and medical benefits to anyone injured.
Cost: $15-$30 per day
Required: No, but it's a significant risk. So, unless you have an auto insurance policy with $1-$2 million in liability and an OPCF27 endorsement porting that coverage onto your rental car, you should buy this coverage.
NOTE: you must be the driver of the rental car for the endorsement to transfer over.
NOTE 2: Rental car insurance companies typically have only the minimum liability ($200,000) on their vehicles. The default is $1,000,000, but many brokers recommend $2,000,000 as it covers much more.
Personal Effects Coverage or PEC
Sometimes called personal effects protection gives you peace of mind for your personal belongings and valuables. 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 claim.
Cost: $2-$5 per day
Even though many financial experts advise against purchasing a rental agency’s insurance, there is no simple answer. You could have varying degrees of rental car insurance coverage from your personal car insurance policy, your travel credit card, your cash back credit card, and even your home or tenant’s insurance. It’s important to know what level of coverage you have before you visit a rental car agency so you don't feel pressure at the desk.
You don't have car insurance and your credit card doesn't provide coverage
Without your own auto insurance policy that includes collision and comprehensive coverage, or at least credit card that provides CDW and LDW coverage, there is too much financial risk.
Your auto insurance policy doesn't have the right endorsement
In order to be covered for liability and personal accident insurance, your Ontario auto insurance policy needs the OPCF27 (liability for non-owned automobiles) endorsement to be transferable to a rental car. Look for the endorsements in your home province (SEF27/QEF27).
You are a high-risk driver and it's not worth another claim
If you're already paying a lot for car insurance due to accidents and tickets, it's likely not worth making yet another claim with your insurer. Buy the insurance to avoid making a claim with your insurer. However, know that your insurance company (or any new insurance company) will find out about the collision as it shows up on your motor vehicle record.
Travelling for business
Do not assume your personal policy has you covered if you're on official business. Your employer is paying for the rental car, they should pay for the insurance too.
Renting sports cars, trucks, luxury, or specialized vehicles
These are expensive cars and have a higher replacement value than your own. If you want to pay for fancy, best to pay the fancy insurance as well.
Your own policy only covers the minimum
Collision and comprehensive, which covers CDW and LDW, are optional on your auto insurance policy. So if you don't have them, and your credit card doesn't cover these, buy the insurance. Also, the minimum third-party liability is $200,000. Upgrade this amount to at least $1,000,000.
International travel (outside North America)
Your own policy may not cover you beyond North America's borders. Either call your provider to find out, or pay for the insurance at the counter.
Are you getting the best rate for your car insurance?
While paying for rental car insurance may give you peace of mind, it’s not always a smart financial decision. If you have a personal auto insurance policy with collision, comprehensive and OPCF27 (liability for non-owned automobiles), a rewards credit card or even home insurance you may want to avoid purchasing coverage you already have.
Here are the 4 types of insurance offered by rental car agencies and when you can avoid paying for them:
Loss/Collision Damage Waiver
Personal Accident insurance
Personal effects coverage
If you’re trying to lower your monthly cost of auto insurance, we recommend speaking with your broker, agent, or private insurer to see what options are available. Also, make sure to check the CLEAR table provided by the IBC to see how much your car costs ahead of its purchase. As well, if you’ve previously held insurance in another jurisdiction you may be able to apply for additional discounts. Here are some more tips to help you save:
Shop and compare
Use the internet to your advantage and shop with vroomvroomvroom.ca, autoslash.com, Costco, or Kayak to compare prices. Check the different agencies as well to compare the best rates.
Leverage loyalty programs
Many rental car agencies have loyalty programs that allow you to earn points and redeem them towards a cheaper rental.
Look for coupons
All the agencies will offer coupons, discounts, or even free days depending on your location and length of rental.
Take the economy car
Economy cars are usually the cheapest, but they also rent the most. You may get a free upgrade if they're all out of economy cars, but don't book something too small for your party.
Skip the airport
Often times, booking away from the airport saves you on the premiums airport locations charge for convenience.
Skip the insurance
If you have an auto insurance policy, home insurance, and a good credit card - you can likely forgo the insurance.
How much does car rental insurance cost?
How can you purchase rental car insurance?
Do rental car companies offer free spousal drivers?
How do you rent a car?
What do you need to rent a car?
Where can I rent a car?
What is a rental car agency?
Matt started his professional career at CARPROOF where he honed his marketing and analytical skills for over 3 years. Matt then took his wealth of experience to Ratehub.ca’s Toronto offices, working with insurance providers, agents, and brokers to grow and expand the Insurance business unit. He is a thought leader in the community and a valuable insurance resource to respected publications like the Globe & Mail, Toronto Star, Huffington Post, Yahoo News, and 680 news radio in Toronto.
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