Do I need Rental Car Insurance in Ontario?

rental car insurance
Do you need car rental insurance in Ontario?

When renting a car in Ontario, the vehicle must be legally insured. The owner of the rental vehicle (the company i.e. Enterprise) must have legal liability insurance, just like any other driver in Ontario, Canada.  However, rental car companies typically do not carry collision, all-perils, or comprehensive coverage on their rental vehicles. 

Rental car insurance for physical damage to the vehicle is typically transferred to the rental vehicle through the renter’s insurance policy, purchased by the renter (CDW – Collision Damage Waiver), or self-insured by the rental vehicle company (they pay for their physical damages they are responsible for).

If you’ve ever asked yourself if you needed rental car insurance it probably stems from the following scenarios:

  • You’ve been in a car accident and need transportation replacement 
  • Your vehicle is incapacitated and you need to rent a car as a result
  • You need to rent a car for vacation purposes

Rental Car Insurance after an accident in Ontario:

Most drivers who’ve been in a car accident and pursue a claim for damages to their insurance company will most likely need transportation replacement while the vehicle is being repaired or replaced.  

If the Ontario policyholder has loss of use coverage for the vehicle, typically covered under OPCF 20 endorsement, a rental vehicle would be offered to temporarily substitute the insured vehicle being repaired or replaced.    

The OPCF 20 covers you for the loss of use of your insured vehicle but it doesn’t cover you for loss or damage to the rental vehicle, which you may be responsible for.  The OPCF 27, takes care of potential loss or damage you may cause to unowned vehicles and is usually combined with the OPCF 20, subject to limitations. 

If you carry the OPCF 20 on your auto policy, you more than likely have the OPCF 27, as well. The two endorsements typically come as a package and require optional loss coverages, such as collision, comprehensive, or All-Perils, to be purchased. This means that if you only have liability coverage on your vehicle, you probably do not carry these coverages. Check with your broker or agent to confirm! 

During a vehicle accident claim, you would probably need a replacement vehicle, provided you have that coverage. The coverage for loss of transportation begins when your insured vehicle becomes inoperable. This can be a direct result of the damages to your vehicle from the incident, or when dropping your vehicle off for repairs. 

While signing your rental insurance contract with the rental company, you will be asked to purchase the CDW or extra insurance.  This is an upsell opportunity for the rental company, therefore they will pitch the features and benefits of the CDW, even though coverage may exist through your auto policy.  

Do I need rental car insurance if I have full coverage? 

If you have optional loss coverage on your insured vehicle, insurance from your described, insured vehicle transfers to the rental vehicle. The rental vehicle would be treated as if it were the insured vehicle on your policy, subject to the same deductibles, amounts of insurance, and limitations.  Keep in mind that there is a monetary limit to the OPCF 27, so if you cause loss or damage to the rental car which exceeds your coverage limit, you’d be on the hook for what is over and above your limit.  

For example, your vehicle has a limit of $25,000 for liability for damages to non-owned vehicles (OPCF 27).  You write off a rental vehicle that’s worth $30,000.  Your insurance company would only cover up to your $25,000 limit and you’d be responsible for the remaining $5,000. 

Do I need rental car insurance if I only have liability coverage on my car?

If you require the use of a rental vehicle and carry liability coverage only, you would need to purchase rental car insurance from the rental company. The insurance they offer is often referred to as the “Collision Damage Waiver” or CDW for short.  If you purchase the CDW, or Collision Damage Waiver, and cause loss or damage to the rental vehicle, the CDW would cover liability for damages caused to others while operating the rental vehicle and will also cover damages to the rental vehicle. 

The CDW is an extra charge, on top of the price to rent the vehicle, and typically can cost anywhere between $10 to $75 a day, depending on the rental car company you choose. Smaller rental companies typically charge a lot more for the CDW than larger outfits such as Enterprise Rent-A-Car. 

Do I need to buy the Collision Damage Waiver if I get into an accident and my vehicle has full coverage?

Suppose you have full coverage on your vehicle and carry the OPCF 27 endorsement. In that case, the coverage from your insured vehicle will transfer over to the rental vehicle, subject to the same coverage and limitations as your insured vehicle. The insurance company would treat the rental vehicle the same as if it were your insured vehicle, subject to monetary limitations. Keep in mind that coverage limits are different depending on the coverage you choose or what can be offered by your insurance company.   Exhausting your policy limits is rare during an auto insurance claim because insurance companies only allow you to rent a vehicle of like, kind, and quality to yours. For example, if the insured vehicle on your policy is a small compact vehicle, you would be entitled to rent a vehicle that’s similar to yours: a small compact vehicle. If you have an exotic car valued at $300,000, you’d be entitled to rent an exotic vehicle of comparable value.   

Finding the cheapest rental car insurance in Ontario

If you’re looking for the cheapest rental car insurance stick to the bigger rental car companies,  such as Enterprise  Rent-A-Car, Hertz, or Budget.  Rental vehicle prices tend to be lower for larger companies operating in line with economies of scale.  This means they can afford to offer lower prices and still be profitable. Stick to the bigger companies if you want cheap rental car insurance.

Smaller vehicle rental businesses have trouble competing with bigger outfits and usually pass that expense to the consumer.  This is why you see such a price discrepancy in vehicle rental rates, and in particular, the Collision Damage Waiver, or rental car insurance.  The rates for the extra insurance or CDW from smaller companies can be very high! Some companies charge $50 a day or more for their CDW!  

Rental Car Insurance Coverage 

Coverage for rental vehicles hinges on whether you decide to buy the insurance directly from the rental car company or allow the coverage from your auto policy to transfer to the rental vehicle.  

If you buy rental insurance from the rental car company, also called the CDW (Collision Damage Waiver), that policy becomes primary. This means that if you got into an incident or accident you’d be claiming the rental company’s insurance company, not yours.  This includes all mandatory coverages such as Liability, Accident Benefits, Uninsured Motorist, and Direct Compensation Property Damage (DCPD).  It also includes optional loss coverage such as collision and comprehensive or All perils, subject to their deductible, if any. 

A lot of the time rental car companies do not charge a deductible for the CDW, as a marketing benefit to attract more sales. However, it’s tough to beat free coverage if your auto policy already takes care of the rental insurance coverage, even though a deductible may still apply. 

Do I need rental car insurance when I go to the USA?

Section 1.2, of the Ontario Automobile Policy, or OAP 1, states that coverage will be provided to you and other insured persons for incidents in Canada, and the United States of America.  This includes coverage if your vehicle is being transported on a vessel between the USA and Canada.  

If you have full coverage on your vehicle and the OPCF 27, coverages should transfer over to the rental vehicle, up to your limits, regardless if you use the rental vehicle to travel to the United States of America. 

Does my insurance company cover rental car insurance in Ontario?

Your insurance company will ONLY cover rental car insurance if you do not carry optional loss damage coverage and are wholly or partially not at fault for the accident. 

Example 1: If you are 100% Not at fault for an accident, the rental car insurance, or Collision Damage Waiver (CDW) would be purchased for you by your insurance company, provided you do not have collision and comprehensive or All-perils coverage.

Example 2: If are deemed 100% Not-At-Fault for an accident and have full optional loss coverage (collision and comprehensive or All-Perils) the insurance company will not pay for the rental car insurance. Why? Because your coverage transfers over to the rental car, subject to limitations. 

Example 3: You have no collision, comprehensive or all-perils coverage, only liability coverage. You get into a 50% at-fault accident.  Your insurance company would cover half the cost of the rental vehicle and half the cost of the collision damage waiver, and rental car insurance. 

Do I need rental car insurance when my car is stolen?

If you submit a claim to your auto insurance company for your vehicle’s theft or attempted theft, rental car insurance would only be required if you do not have optional loss coverage (collision and comprehensive or all-perils). 

If you have full coverage and the OPCF 27 endorsement, the coverage from the stolen vehicle would transfer to the rental vehicle, subject to the OPCF 27 limits.   

Do I need rental car insurance when my car has broken down in Ontario?

As long as you carry the OPCF 27 endorsement, coverage from your broken-down vehicle should transfer to the rental vehicle, subject to limitations. If you decide to rent a vehicle valued more than the limit on your OPCF 27, or OPCF 27b, keep in mind your insurance company will only pay out the maximum limit described under the OPCF 27 endorsement.  Speak to your insurance broker or agent to confirm if you carry the coverage!  

Liability or third-party insurance coverage on a Rental Vehicle 

In Ontario, the law of insurance priority dictates what auto insurance policy will respond first to a loss or damages resulting from the use and operation of the vehicle.  Usually, the owner’s policy would always respond first to any potential third-party liability exposures. 

When renting a vehicle in Ontario, the liability portion of the rental should always respond to the loss or damages first.  This means that if you cause loss or damage to people or property while using or operating the rental vehicle, a third-party claimant will demand indemnification from the owner’s policy. 

What is a Collision Damage Waiver in rental car insurance?

The Collision Damage Waiver, also known as CDW, is essentially insurance coverage offered by the rental car company. The CDW covers you should you cause physical, loss or damage to the rental vehicle. Typically you do not need the CDW if you have full coverage and the OPCF 27 endorsement, subject to limits.  If you rent a vehicle whose value exceeds the transferable limit from your auto policy, you would need the CDW to cover the difference. 

Does my credit card cover rental car insurance?

Many credit cards offer rental car insurance coverage, but it typically applies as collateral coverage.  This means if you have coverage through your auto policy the insurance protection offered by the credit card company would not respond first. 

Every credit card has its unique coverage wordings, limitations, restrictions, and conditions when it comes to rental car insurance through credit cards. 

Peter Martire, CIP, CRM, RIBO – Executive Editor and Insurance Advisor

Peter has been working in the insurance industry since 2005. He has over 18 years of experience adjudicating complex auto insurance claims and sales and service brokering. In March of 2024, he partnered with Begin Insurance Inc. as a Senior Insurance Advisor. He also serves as Executive Editor of carinsuranceinontario .ca.

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