Do You Need Rental Car Insurance Coverage? Understand What It Is and Why It Matters

When you rent a vehicle, whether it be for travel, business, or during car repairs, you should have insurance in case of an accident, injury, or theft. While rental companies offer insurance packages at the time of booking or pick-up, your current auto insurance policy or credit card may provide all the coverage you need. Understanding your policy will help you make an informed decision as to whether or not to insure the rental car and avoid paying for redundant coverage. While the best way to find out about your policy is directly through your broker, this blog will discuss how car insurance coverage for rental cars works to help you find out if the additional coverage is right for you.

Is Rental Car Insurance Mandatory?

At BIG, we receive many calls from customers who wonder: Do I need to buy insurance when I rent a car? In Canada, you are legally required to have third-party liability coverage in order to drive any vehicle — whether that be a rental or your own vehicle. However, so long as you can prove that you have sufficient coverage through your existing auto insurance policy, a credit card, or both, adding car insurance on a rental, at the rental car counter is not mandatory. That said, you must be certain your existing coverage will protect you in every possible incident, so read the fine print on your policies — and your rental agreement — to make sure you don’t leave yourself exposed to risk.

 

Does My Current Auto Policy Have Rental Car Insurance Coverage?

It depends. The best way to get a clear answer on whether or not insurance for rental cars is part of your existing plan is to speak directly with your broker about your policy. When you purchase your auto insurance policy, some coverages are optional, and one of them is directly related to rental car insurance coverage.

Legal Liability for Damage to Non-Owned Automobiles – this is an optional endorsement that would cover damage and theft of any vehicle in your care, including rental vehicles. This coverage effectively transfers your personal auto insurance coverage to the rental car and applies to any drivers listed on your policy. Be sure to check the limits and restrictions to ensure you have adequate coverage through this endorsement. If you do not have it, your broker can easily add it to your policy, or you can purchase the additional insurance a rental car company offers as an alternative.

Personal Property - Your home insurance may cover personal possessions in your rental car, such as luggage, photography equipment, etc. If you have property insurance, reach out to your broker to see if your contents would be covered in your situation.

 

Does My Credit Card Provide Insurance for Rental Cars?

Possibly. Some higher-end credit cards provide rental car insurance coverage when you book and purchase the rental with your credit card. Credit cards may include coverage for damage, theft, accidents, and health protection within a given limit. However, they will not usually provide liability or personal injury coverage. It’s best to check with your credit card issuer to see what coverage might be available to you. If you frequently drive a rental vehicle, it could be worth your time to research credit card companies and find one that offers the most comprehensive rental car coverage.

What Rental Car Insurance Coverages Does the Rental Car Company Offer?

When purchasing insurance for rental cars directly through rental car companies, they will offer multiple options - some may already be covered by your existing auto policy, home policy, or credit card.

Loss Damage Waiver (LDW) / Collision Damage Waiver (CDW) – this waiver would cover collision or theft of the rental car. You are essentially paying the car rental company to waive its right to pursue you for damage, loss, and lost revenue for repairs. 

Personal Accident Insurance (PAI) – different packages are made available to cover the driver and passengers in the car in the event of accident, death, and dismemberment. Typically, the driver is covered up to $100,000 and passengers $10,000 through a rental company package. 

Liability Insurance – this coverage would protect you from being held liable in a collision whether you are at fault, have injured others, or damaged another person’s property. Your auto insurance policy may suffice if you have $1 million - $2 million liability in coverage.

Personal Effects Coverage (PEC) – the rental car company may also encourage you to insure your personal belongings and valuables. There is usually a limit and a deductible for this coverage, and you may already have insurance for your personal belongings through property insurance.

Before you opt out of or purchase any of these options from the rental company, check with your insurance broker or credit card company to see if you already have sufficient coverage in place.

International Travel & Rental Car Insurance Coverage

It’s important to note that an endorsement for rental car coverage only transfers your personal auto policy to rental vehicles within Canada and the United States. Speak with your broker or credit card company about rental car insurance coverage before you travel outside Canada or the US. Rental companies in some countries, like Ireland, for example, make it very difficult to decline adding the Collision Damage Waiver coverage through the rental company. To avoid this, they may require proof from your credit card confirming coverage in writing.

Do I Need Loss of Use Coverage for My Car Insurance?

Before we answer whether or not you need loss of use coverage, you might be asking: What does loss of use cover on a rental car? While for your personal vehicle, this particular coverage pays for costs you incur while your vehicle is being repaired or replaced, for a rental vehicle, it takes on an entirely different meaning. If a rental vehicle is damaged, destroyed, or stolen under your care, the rental car company could pursue you for lost income while the rental vehicle is being repaired or recovered. Your personal car insurance will not cover these costs, so it is a good idea to make loss of use coverage a part of your car rental insurance coverage.

How Much Does Rental Car Insurance Cost?

Several factors will influence the cost of rental car insurance. A rental company might offer various types of coverage, including liability insurance, personal effects coverage, and personal accident insurance. The more types of coverage you add to your plan, the more you will pay. Other factors that impact the total cost of your premium include:

• The vehicle model: Higher-end models cost more to insure, so save money by choosing a humbler vehicle.
• The length of your trip: The longer you have coverage provided, the more you’ll pay.
• Your age: Drivers under 25 and senior citizens might pay a higher premium.
• Location: Where you drive the vehicle will influence your rates.

Because there are so many ways to customize car insurance for rental cars, it is difficult to give an accurate estimate of what you will pay for your plan. Some drivers pay as little as $35 per day, while others can pay as much as $85 per day. 

What Happens if I am in an Accident with a Rental Car?

One final thing to consider is that if you are in an accident with a rental car and you’ve relied on your personal auto insurance policy or credit card coverage, you will first have to pay for damages out of pocket and later submit them for reimbursement. If this is a financial situation you would prefer to avoid, the convenience of the rental car company insurance might be worth it for you to avoid the hassle of the claims process.

As you weigh your options for insurance for rental cars, a simple conversation with your broker can help you make that choice. BIG’s insurance professionals are here to provide you with all the necessary details of your policy so that you can make an informed decision related to car insurance on rental cars. Contact us now to learn more!