THOUGHT LEADERSHIP

Car Rental Insurance

 


We’ve all been there — on vacation and waiting our turn in front of a car rental counter. Car rental insurance probably isn’t the first thing on your mind in this situation, but you will almost certainly be asked whether you need to purchase it. What is the correct response? While no one wants to pay for car rental insurance that they do not need, having an accident without adequate coverage is a serious situation. Arriving at the proper answer, and eliminating doubt over this issue, requires determining whether your existing coverage is transferable or if you are covered for this risk through other means.

Overview

There are two types of insurance applicable to car rentals — coverage for loss of or damage to the vehicle being rented (collision and comprehensive), and coverage for both loss or damage and bodily injury to third parties (third party liability). When driving in most Canadian provinces, it is mandatory that you have at least $200,000 in coverage for third party liability (except in Quebec where the minimum is $50,000 and Nova Scotia where the minimum is $500,000), with recommended limits of $1,000,000 or more. Collision and comprehensive coverage is optional, but the vast majority of car owners buy this coverage, especially if the vehicle is newer and it would cost more to repair or replace. Whether you’re driving a personal vehicle or a rental, make informed choices about the coverages you carry and make sure you’re adequately insured in case of an accident.

Vehicles Rented in Canada

Your Personal Auto Insurance

Collision and Comprehensive: With most auto policies there exists an option to add coverage for damage to vehicles that you drive but do not own. It is a standard addition to your existing policy that extends the collision and comprehensive physical damage coverages from the insured vehicle to the non-owned rental vehicle while driving within Canada. You must have already purchased collision and comprehensive coverage on your existing policy in order to extend this coverage to a rental vehicle. Check with your insurance broker regarding the applicable limit and deductible.

Third Party Liability: This coverage is automatically extended (at no additional cost) to protect you while driving a non-owned rental vehicle in Canada. The rental company will also have third party liability coverage on their vehicles, but depending in which province you rent a vehicle in Canada, coverage from the rental company may be excess to your personal auto insurance rather than primary (primary coverage responds first in the case of an accident).

For example, in Ontario and Alberta, your personal auto insurance would be primary coverage. Also, the rental company needs only to provide the minimum liability limit required by law.

Note that conditions will apply to this coverage. For example, the rental vehicle must not be used to carry paying passengers or for other commercial purposes. Please see the “Common Conditions” section of this newsletter for other examples, but consult your insurance broker if in doubt.

Remember, when using your personal auto insurance to insure a rental vehicle, your personal policy will be affected just as if you were driving your own vehicle in case of an accident.

Car Rental Insurance From Credit Cards

Collision and Comprehensive: This is a common benefit provided by many personal credit cards (usually “gold” or “platinum” cards), but it is your responsibility to ensure the specific card you use to pay for your rental vehicle offers this coverage. Remember that there are limitations with respect to the type and use of the vehicle, the number of rental days, and restrictions on claims reporting in order for coverage to be provided. All of these details are included in the pamphlet given to you by the credit card company. You must book and pay for the rental in full with this card for the coverage to be in force. Check to ensure the limit is adequate for your needs and that the deductible is acceptable in case of an accident.

Third Party Liability: This is not included with credit card coverage. Ensure you are covered for third party liability through some other means.

Insurance From Your Car Rental Company

Collision and Comprehensive: This is usually named the Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW) by the rental company. In the event your personal auto policy or your credit card doesn’t cover this, you should purchase this waiver of liability from the rental company. Other fees following an accident such as administrative costs, and storage and impound fees are usually covered when you purchase a CDW/LDW.

Third Party Liability: Liability coverage included with vehicle rentals acts as the primary coverage in all provinces except British Columbia, Alberta, Ontario, and Nova Scotia where your personal liability coverage may act as the primary coverage due to newly instituted vicarious liability laws. In the event you do not have personal auto insurance, the rental company liability insurance is the primary coverage in all cases when renting for personal use. Confirm what coverage is available for commercial use rentals, if required. If you do not have personal auto insurance, purchasing coverage from the rental company becomes vitally important. Regardless, it is recommended that you carry at least $1,000,000 in Third Party Liability coverage.

Loss of Use: The rental contracts state that the renter is liable for “loss of use” as well as damage — their loss of income as a consequence of being unable to rent that car while repairs for damage are being undertaken. This expense may be covered by a credit card, and should be covered by the endorsements on an auto policy, if you’ve purchased them. If you purchase the CDW/LDW, it also waives this consequential liability, but otherwise, the individual renter signing the contract will be personally liable for this cost. However, a breach of the contract conditions will void all CDW/LDW coverage. For example, driving off-road, or outside the allowed territory, or towing a trailer are all considered contract breaches.  See the “Common Conditions” section for a more complete list.

Other Considerations: A common exclusion to coverage provided by rental companies is driving on unpaved or gravel roads. Driving “off-road” can be an issue even for those who intend to visit a cottage using a rental car as roads leading to cottages are typically unpaved. In this case, it would be prudent to have the appropriate endorsement on your personal auto insurance so this coverage can extend to your rental vehicle.

Vehicles Rented in the United States

Your Personal Auto Insurance

Collision and Comprehensive: With most auto policies there exists an option to add coverage for damage to vehicles that you drive but do not own. It is a standard addition to your existing policy that extends the collision and comprehensive physical damage coverages from the insured vehicle to the non-owned rental vehicle while driving within the US. You must have already purchased collision and comprehensive coverage on your existing policy in order to extend this coverage to a rental. Check with your insurance broker regarding the applicable limit and deductible.

Third Party Liability: This coverage is automatically extended (at no additional cost) to protect you while driving a non-owned rental vehicle in the US. When renting in the US, the contract states that your personal insurance will be primary unless you purchase the insurance extension from the rental company. Note that conditions will apply to this coverage. For example, the rental vehicle must not be used to carry paying passengers or for other commercial purposes. Please see the “Common Conditions” section of this newsletter for other examples, but consult your insurance broker if in doubt.

Remember, when using your personal insurance to insure a rental vehicle, your personal policy will be affected just as if you were driving your own vehicle in case of an accident.

Car Rental Insurance From Credit Cards

Collision and Comprehensive: This is a common benefit provided by many personal credit cards (usually “gold” or “platinum” cards), but it is your responsibility to ensure the specific card you use to pay for your rental vehicle offers this coverage. Remember that there are limitations with respect to the type and use of the vehicle, the number of rental days, and restrictions on claim reporting in order for coverage to be provided. You must book and pay for the rental in full with this card for the coverage to be in force. All of these details are included in the pamphlet given to you by the credit card company. Check to ensure the limit is adequate for your needs and that the deductible is acceptable in case of an accident.

Third Party Liability: This is not included with credit card coverage. Ensure you are covered for third party liability through some other means.

Insurance From Your Car Rental Company

Collision and Comprehensive: This is usually named the Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW) by the rental company. Other fees following an accident such as administrative costs, and storage and impound fees are usually covered when you purchase a CDW/LDW. In the event your personal policy or your credit card doesn’t cover Collision and Comprehensive, you should purchase this waiver of liability from the rental company.

Third Party Liability: In the US, the rental contract you sign states that if you do not purchase their Supplemental Liability Insurance, that your own personal policy will be primary and that the excess insurance provided by the rental company will not exceed the required minimum limits of the state, which are as low as $25,000 or $30,000. In Louisiana, California, and Georgia you do not have even the minimum limits coverage from the rental company. If you do not have personal insurance, purchasing coverage from the rental company becomes vitally important and is the primary coverage in all cases when renting for personal use. Regardless, it is recommended that you carry at least $1,000,000 in Third Party Liability coverage. Confirm what coverage is available for commercial use rentals, if required.

Loss of Use: The rental contracts state that the renter is liable for “loss of use” as well as damage — their loss of income as a consequence of being unable to rent that car while repairs for damage are being undertaken. This expense may be covered by a credit card, and should be covered by the endorsements on an auto policy, if you’ve purchased them. If you purchase the CDW/LDW it also waives this consequential liability, but otherwise, the individual renter signing the contract will be personally liable for this cost. However, a breach of the contract conditions will void all CDW/LDW coverage. For example, driving off-road, or outside the allowed territory, or towing a trailer. See the “Common Conditions” section for a more complete list.

Other Considerations: Remember that the US is a separate country from Canada, and in some cases your personal insurance is not readily recognized there. While it is true that your personal insurance or premium credit card can provide coverage for a car rental in the US (given the right conditions), it may be a problem immediately proving coverage if such coverage is not purchased from the rental company. For example, in the US it is common practice to tie vehicle insurance to a Vehicle Identification Number (VIN) — this is only possible with waivers of insurance purchased from the rental company. In addition, there have been some cases of rental companies demanding immediate compensation for damage and loss of use of a vehicle after an accident. Although your personal insurance company or credit card company will likely ultimately pay for these costs, you may be responsible for the costs until your claim has been processed.

A common exclusion to coverage provided by rental companies is driving on unpaved or gravel roads. If you are planning on driving “off-road,” it would be prudent to have the appropriate endorsement on your personal auto insurance so this coverage can extend to your rental vehicle.

Vehicles Rented Outside of Canada and the United States

Your Personal Auto Insurance

Collision and Comprehensive and Third Party Liability: There is no option to extend any coverage from your personal automobile policy while travelling outside Canada or US. You will have to purchase insurance from the rental company or buy a policy that specifically provides appropriate coverage.

Car Rental Insurance From Credit Cards

Collision and Comprehensive: When driving outside of Canada or the US, you may have Collision and Comprehensive coverage for the physical damage to the rented vehicle, but must confirm that through your credit card policy.

Third Party Liability: You do not have Third Party Liability coverage from credit cards.

Insurance From Your Car Rental Company

Collision and Comprehensive: This is usually named the Collision Damage Waiver (CDW) or a Loss Damage Waiver (LDW) by the rental company. If driving a rental car outside of Canada or the US, you should purchase this waiver of liability from the rental company unless you are able to rely on credit card coverage.

Third Party Liability: If driving a rental car outside of Canada or the US, you should purchase this waiver of liability from the rental company.

Loss of Use: The rental contracts state that the renter is liable for “loss of use” as well as damage — their loss of income as a consequence of being unable to rent that car while repairs for damage are being undertaken. This expense may be covered by a credit card. If you purchase the CDW/LDW it also waives this consequential liability, but otherwise, the individual renter signing the contract will be personally liable for this cost. However, a breach of the contract conditions will void all CDW/LDW coverage. For example, driving off-road, or outside the allowed territory, or towing a trailer. See the “Common Conditions” section for a more complete list.

Other Considerations: In some countries, when an accident has been reported to the police, the police may seize your passport and not allow you to leave the country until your liability for the accident has been determined and paid. Having the rental company’s insurance can eliminate this, unless there are traffic charges.

Common Conditions

Personal Insurance
  • To be eligible for coverage through your personal auto insurance, often the rental vehicle must not have a manufacturer’s gross vehicle weight rating (GVWR) of more than 4,500 kg – 5,000 kg. Remember this when you need a truck rental.
  • Ensure only those who are covered drive the rental vehicle. You must provide the rental company with information on every individual who will be driving the vehicle. Failure to do so can result in an unpaid loss.
  • Personal insurance commonly only has a coverage limit of CAD$50,000 or less for Collision and Comprehensive claims, and covers your rental vehicle for a maximum of 30 days. Keep this in mind if you are planning on renting a luxury or exotic vehicle which may be valued at more than your coverage limit — car rental insurance may be recommended in this case.
Car Rental Insurance

The following is a partial list of common conditions under which rental agencies will typically decline coverage:

  • Driving in excess of the posted speed limit.
  • Driving under the influence.
  • Driving on unpaved or gravel roads.
  • Using the car for illegal purposes.
  • Pushing or towing any object.
  • Hitting obstructions in the road.
  • Carrying persons for hire.
  • Driving out of province/state.
  • Use of the vehicle by anyone other than the authorized operator.
  • Loading beyond rated capacity.
  • Obtaining the vehicle under fraudulent means or by misrepresentation.
  • Racing.

Other Insurance

In addition to car rental insurance, other coverages rental companies typically offer include insurance for personal accidents, accidental death, medical expenses, and personal effects. Do your homework to establish if you already have adequate coverage, for example through a company benefit plan. If you intend to purchase insurance from a rental company, double-check the coverages offered and take the time to read the fine print.

Returning Your Rental Vehicle

At the end of a vacation, most people are anxious to drop-off their rental car and resume their trip home. Remember to take the time to receive the rental company’s written acknowledgement (usually a receipt) that states you have returned the rental vehicle safely and in satisfactory condition. This is your proof in case the rental company later alleges that the vehicle was damaged during your rental.

Conclusion

Considering car rental insurance is something most consumers have to do sooner or later. The route you take to ensuring that you are protected will vary depending on your individual circumstances, but taking some time to make a few calls and verify coverage can usually save you some money.

If unsure about whether to purchase car rental insurance, a great place to start is by contacting your licensed insurance broker.