Is taking out rental car insurance a good idea?

One expert, however, reveals that what rental car companies are offering is not insurance at all.

“Car rental agencies insure their fleets, so what they’re offering isn’t actually insurance,” wrote Matt Hands, business director of insurance at comparison website Ratehub.ca. “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.”

Read more: ‘More Canadians need car insurance than we can place’ – LowestRates.ca

He adds that when it comes to purchasing car rental insurance, it pays for drivers to “know the rules” for them to “make a smart, informed, and financially savvy decision.”

Here are the four types of coverages rental car insurance provides, according to Hands.

1. Collision damage waiver (CDW) or loss damage waiver (LDW)

This waiver protects the rental vehicle and nothing else. Just like collision and comprehensive insurance in standard auto policies, it covers the cost if anything happens to the rental car such as fire, theft, or accident.

According to insurance brokerage Isure.ca, rental car companies have also started charging additional fees for the following:

Lost revenue while the car is being repaired
Administrative fees for handling the repair
Towing costs
Depreciation on the resale value of the vehicle after an accident

Hands, meanwhile, also reminded drivers that CDW or LDW is not an insurance policy, noting that “by signing the agreement, you’re paying the car rental agency to waive its right to pursue you for damages or losses.”

2. Liability insurance (LI)

Liability insurance protects the driver if they are at fault in a collision and cause damage or injury to other people and their properties. This type of coverage pays out the costs related to the accident, including medical expenses and vehicle repair.

3. Personal accident insurance (PAI)

This provides accidental death and dismemberment coverage to anyone riding the rental vehicle at the time of the accident. The benefits package varies between rental car agencies, but typically the driver is covered up to $100,000 while the passengers are eligible for up to $10,000 in the payout.

4. Personal effects coverage (PEC)

Also referred to as personal effects protection, this covers the driver’s personal belongings in the event they are lost, damaged, or stolen while inside the rental car. Coverage often has a limit, typically $500 per person, and a deductible – usually $25 per passenger – is also required before a claim is paid out.

How much does rental car insurance cost?

Ratehub.ca pegs the cost of each type of coverage at the following price range:

CDW/LDW: $9 to $30 per day
LI: $15 to $30 per day
PAI: $7 to $10 per day
PEC: $2 to $5 per day

Based on these, rental car insurance premiums could range between $33 and $85 per day if the driver opts to purchase all available coverages. This could easily cost around $230 to $595 a week that is why Hands advises car renters to “understand your coverages and fill gaps as needed” to avoid paying for “extra charges that you didn’t need to pay in the first place.” 

Read more: How rate comparison sites save Canadians money on car insurance

When is taking out rental car insurance a good idea?

There are several situations, however, where purchasing rental car insurance is a logical choice. Here are some of them, according to Ratehub.ca.

The driver does not own an auto insurance policy
The driver’s credit card does not provide rental car coverage
The driver’s car insurance policy does not have the right endorsement that allows it to be transferable to the rental vehicle
The car renter is considered high-risk and cannot afford the risk of another claim
The driver is travelling for business, which means insurance should be paid by the employer if they are the ones who rented the vehicle
The driver is renting a sports car, truck, or luxury or specialized vehicle
The driver’s auto insurance policy covers only the minimum
The driver is travelling outside North America, which is no longer covered by standard car insurance

When is taking out rental car insurance unnecessary?

Experts also advise car renters to double-check the coverages that they already have as rental car insurance may already be covered in these policies. These include:

1. Personal car insurance

Most car insurance providers in Ontario offer additional coverage for non-owned automobiles, formally referred to as Ontario Policy Change Form (OPCF) 27. This endorsement provides coverage to any vehicle the policyholder drives, including rental cars and a friend’s vehicle. Other provinces offer a similar endorsement – QEF27 in Québec and SEF27 in private insurer provinces such as Alberta and Atlantic Canada. If the driver’s auto insurance policy includes these endorsements, then purchasing additional coverage from a car rental company becomes unnecessary.

2. Complimentary coverage from credit cards

Many credit cards already provide collision damage on rental vehicles. To qualify for this coverage, the card holder will likely need to charge the full amount of the rental on their credit card and decline the collision damage waiver offered by the car rental company.

Third-party liability, however, is not covered, according to the consumer website CreditcardGenius.ca, while rental car insurance obtained by purchasing travel insurance through a credit card often comes with an upper limit, so it pays to check what those limits are. 

3. Personal belongings coverage in home insurance

Homeowners’, condo, and renters’ insurance policies provide contents coverage, which extends to personal belongings lost or damaged outside the home, including rental cars. Those who already have home insurance can opt not to take out personal effects coverage.

4. Life insurance

Those who carry life insurance or group health benefits plan with short- or long-term disability coverage can choose to waive personal accident insurance. But experts suggest that policyholders check with their insurers first to be sure that they are fully covered from accidents.

5. Travel insurance

Some trip cancellation, travel health, and medical evacuation insurance policies allow rental car coverage to be included as an add-on, according to Isure.ca. This often covers loss or damage to the vehicle. Some policies also cover costs associated with towing, salvage, fire department charges, and reasonable loss of use.